The last time super-high heels were in vogue was during the Depression that followed the 1929 Wall Street Crash.
Ali Hall, editor of fashion magazine Look, told The Sun: "All the main shoe trends are mega high and even more death defying."
Feminist academic Germaine Greer has predicted that the popularity of high heels will collapse as the recession worsens.
"Now is the towering shoe moment of the Noughties, which will be followed by the inevitable fall," she wrote.
Women may enjoy window-shopping for towering stilettos but "few of them will have the spare cash to invest in shoes that can be safely worn only in bed," she added.
The historian Amanda Foreman blamed the growth of high heels on male fashion executives who want to restrain female rivals in the jobs market.
"These shoes are obviously not for the working woman, they aren't designed for cobbled streets. They're not real life, but a little fantasy," she said last month.
The "AAA" credit ratings of both the United States and Britain are "being tested" by the strains in the global economy, while countries like Germany, France and Canada are proving more resistant, Moody's Investors Service said on Thursday Bonds News | Reuters.com
"Just to repeat, the key lesson in crisis resolution is transparency. I hope the results of the bank stress test will be made public, and the zombie banks clearly identified."
Don't we already know who they are?
When we find out "officially" will the SEC bring charges against the board's and CEO's for securities fraud?
I think the biggest problem is that people have been told that investing is a form of saving - the form of saving, in fact. And they believe it - even when their savings are being ripped out of their hands. So the problem, through that lens, must be investing in the wrong things, rather than the whole fact that what you put into the markets should be what you can afford to lose, not what you depend on for basic things.
Add to that the fact that the society has transformed basic things like security in old age and education into things that can only be achieved through fake saving (investing) in a market that goes up, rather than things ordinary people could have, and it is no wonder that people who live in this never-never land cant grasp that it is a world of myth. That is, they know they are not going to be able to eat during retirement or send their kids to college on their income or on regular savings. But they havent yet grasped that the situation has changed radically and the choices are now - change the system or accept that a college education and independent retirement are no longer choices for most of us.
- Sharon Astyk
We cannot start our recovery until we have completed our bankruptcy. Go ahead now and do the denial, anger, bargaining, and depression. Open the window and scream. Then put the fate of the world ahead of the obvious reasons we shouldnt do this. Yes, we will reward a carnival of bad behavior and make people believe they can get away with it. Should we chose massive global depression instead?
Then ask yourself: Is it possible our property market can deteriorate by 40% and no systemic bankruptcy follows? Is the bubbles very definition homeowners taking on debt they cannot afford to buy houses priced for a Ponzi flip? Where is that bad debt going to go?
It's been 5 months since the AIG thing and the gov'ts still scratching its ass..erm...head. 30 days ought to be enough time to get the rubber stamps made though...
OT: Trade Before a factory in China will shutdown, their owners will have tried to design their own products and try new markets. Paddling upstream through rapids in a canoe with a broken paddle... The idea of boosting domestic demand, which is needed for the good of the global economy, will only keep them occupied and without sufficient results. They won't as a first choice risk depleting their reserves substantially, want to have a cake and eat a cake with only 1 cake in the room.
What I've recently been considering is what is the current minimum trade necessary. I mean we've made theoretically great advances with supply chains. A factory producing common goods will most likely be best in breed and dominate several countries, while competing in a few more. However if the wins and losses prove unbalanced as we recede to a minimum level of trade, what's going to happen? It's unlikely that capital investment would swoop in to take advantage of a cheap currency, not quickly at least. Suddenly smaller countries' currencies become much more illiquid, and the lessons of 1998 are still too fresh to try a peg
Will we see bizarre bartering for common goods whose production is now concentrated in fewer countries ? Will trade socks for shoes, robots for coffee mugs ?
This is beginning to feel like a meteor strike. A lot of smaller crashes happening before the big one. You could easily see it coming, if you knew where to look.
Anyone have further thoughts on Nightttime Theory's stunt of dispatching minions to the banks? It was timed during the bond auctions, while the bank heads were away, recently after a few banks dreamed out loud about paying back TAR{ money, and while his desired crisis plan is at an embarassing stalemate. It's not about bank health because it's not only too few, but they would have to remain there on an ongoing basis with automatic possibilities inside them. Since it's not about bank health, or anything they already knew or could request, the $100bn limit is arbitrary and meant to conceal a few targets. It could have been to have his own troops in the "enemy's" camps while the bond auctions were going on, very unlikely.
The most likely thing is that it was a negotiating tactic to insult and intimidate the bank execs. Clearly they have not been cooperative, and that must mean he has been asking them to do something they are not legally obligated to do. The government is not legally obligated to bail out the banking system, but we all realize the practical necessity of one along with the banks themselves. So Geithner is just demonstrating that there are things he can legally do to play hardball back. Maybe it is meant to scare away foreign investment to trap them under the TARP. Also Geithner was the one getting called in to the office late to work on time limited "sudden" disasters needing him while at the NY Fed, and he's probably personally sick of dealing with Dick Fulds of the world. I could see him wanting a better idea of when the next disaster will be for planning purposes, but anything short of a significant ongoing presence won't be of use. Even the current crew must be a bunch of unexperienced gophers that can only complete simple direct tasks. Should have hired some of the laid off bank employees and given them results based awards.
All in all, I only see the action as a somewhat foolhardy manner of negotiating, with a side serving of what in theory is a good PR exercise to disaffected voters
Is it price to rent ratio that matters, or monthly cost (including mortgage, interest deduction, property taxm insurance) to rent ratio that matters? With low mortgage rates as is typical now, the equivalent rent is different than when rates were 8 or 9%.
Looking at that graph makes me think that a lot of the "bubble" in Sweden might have been inflation - i.e. looking at the difference between rents and prices may be a better indicator of the actual bubble. If so, then the US housing bubble might be bigger in real terms (about above 80% normal IIRC, whereas if you assume rents reflect inflation, the Swedish bubble looks more like 40% above normal).
Also, this isn't a housing bubble. This is a global super bubble involving real estate, stocks, bonds, commodities, currencies etc.
There is no historical precedent for what has happened in recent years.
Ultimately the problem might not be zombie banks so much as zombie countries, and possibly Zombie Earth.
it's not just the banks ya know - what kind of stress test will there be for the various (sic) ratings agencies and various (sic) regulators (not just in the usa) - we have a global problem, and it cuts across many different kinds of organizations/groups (banks, insurance, pensions, ratings agencies, regulators, central banks, politicians, realtors, realty assessors, etc.) - lets not get too myopic here on the banks
but ofcourse ridding ourselves of zombie banks would be a good step in the process
zombie earth aside, we now have an internal discussion within the Fed about nationalization....
Bernanke is against it, Geithner is against it, Summers is against it, and that just does not matter very much because the President calls the shots and he went on national TV and said nationalization worked in Sweden.
As the Geithner outline wobbles, as it must, the discussion will keep coming back to the one approach that has worked, and the differences between the US and Sweden will be cast in a different light.
Maybe it is meant to scare away foreign investment to trap them under the TARP. EvilHenryPaulson | Homepage | 02.12.09 - 12:09 pm | #
One thing complicating this whole problem is the geopolitics of screwing over foreign bondholders of these banks. There are more than economic problems to consider.
"These shoes are obviously not for the working woman, they aren't designed for cobbled streets. They're not real life, but a little fantasy," she said last month.
doc holiday
.
Meh. It's not either/or. If you guys want to understand fashion, and therefore get some insight into retail, go get a copy of Lucky for this month. Heel heights all over the place. It's a much more complex signaling system than you realize.
And don't pay too much attention to the old party-line first generation feminists. So last century.
Anyone have further thoughts on Nightttime Theory's stunt of dispatching minions to the banks?
EHP:
Yves wrote a pretty good piece on it. It's purely a political play to create a sense of security for the public. If you read the NYTimes piece that CR referenced last night, the author glossed over the fact the fact that the 100 regulators were there as part of their regular regulatory activities; the imagery of all these regulators descending on Wall Street and "fanning" to the various banks did achieve the intended false sense of security.
My biggest concern is if speculators targeted a bank that has passed the stress test. If such bank failed, then how can anyone have confidence in Geithner and the Administration?
"Looking at that graph makes me think that a lot of the "bubble" in Sweden might have been inflation - i.e. looking at the difference between rents and prices may be a better indicator of the actual bubble."
That's how all of them started and will continue to be managed. Inflation=bubbles in no certain terms.
Owner Equivalent Rent is not the monthly/annual rent cost. It prices a house from rent costs, which is why it (it's huge as a proportion of CPI) understated inflation for a long while. It takes into account mortgage rates.
A House Price:Owner Equivalent Rent would imply that people are making rational decisions given present information.
zombie earth aside, we now have an internal discussion within the Fed about nationalization....
Bernanke is against it, Geithner is against it, Summers is against it, and that just does not matter very much because the President calls the shots and he went on national TV and said nationalization worked in Sweden. joe shmoe | 02.12.09 - 12:17 pm | #
Sounds like the financial power elite are circling the wagons to maintain their tyranny of incompetence.
Why did rents go from 100 in 1984 to 180 in 1992. That is 7.6% inflation. Was inflation that bad in Sweden? We are not seeing that kind of rent inflation in the US right? Can you plot US rents on top of the nominal Case Shiller so we can see that? Also, it would be nice to see nominal house price predictions given that the P/R ratio goes back to 1.0. I would guess it would be about a 30% nominal drop since rents are probably going to be flat over the next 5 years. If they appreciate at 2%, that is still a 20% drop in nominal house prices.
Finally, US and Sweden are not the same (of course). The Swedish bust in the early 90s was during a decent (if not great) world economy. Now, the world economy is slowing dramatically. Then again, we have some advantages over Sweden I guess.
Basel Too, I think the answer is if they let one of the $100bn+ banks fail, they wouldn't be able to contain the cascading losses, and it's all over anyways. Might as well bet the world isn't going to end, because you don't have a chance at collecting winnings if it does end.
ehp: The Obama administration, like any large organization, is not a unified entity. There are multiple motives from different people. I'm sure it's partly a negotiating tactic, and partly a PR tactic. But, there are undoubtedly people within the Obama administration who think there are problem banks that need to be taken down. The focus on Citi, undoubtedly the weakest major, is very suggestive.
If the rumors of Bair and Geithner fighting over the Citi bailout are true, then Bair in particular may be seeking to show Geithner up by taking down his biggest rescue, and after a whopper of an intervention at that. (Unconfirmed rumors say Bair thought the Citi bail was far too generous and opposed it, and the Geithner was po'd at here for "not being a team player.") The rumors are very much rumors, but certainly it's been true that Bair, for all her faults of slow action, is not willing to give up government money to save bondholders while Geithner is downright eager to do so.
On the subject of the price to rent ratio, does anyone know if historically prices adjust to match interest rate moves on an equivalent basis -- i.e. $1000/month rent at 5% stays $1000/month rent at a 10% rate but property value changes to match.
That's how all of them started and will continue to be managed. Inflation=bubbles in no certain terms.
Ciao MS \t MS MS | 02.12.09 - 12:20 pm | #
Well, I usually think of inflation in two categories - inflation that shows up in wages, and inflation that doesn't. I don't really consider rising house prices a "bubble" if it's being driven by rising wages, because there's not likely to be a "pop". Rents are usually constrained by wages, so that's what makes me think the price increases above and beyond the rent increases are what actually accounts for the bubble part - i.e. things that go pop in the night.
--
Economists Forecast Only Off By 8%, Annual Growth Rate, for 2008Q4 GDP
David Rosenberg, 02/12/09:
GDP now tracking -5.6% 4Q and -6.6% 1Q -- Yesterdays report takes our GDP forecasts down another several notches. Our 4Q revision tracking now stands at -5.6% QoQ annualized (was -4.4% previously and compares to -3.8% in the advance GDP report). The first quarter is now -6.6%, versus -6.3% previously.
How ironic is that? -- A year ago, the consensus forecast was that 4Q08 GDP growth was going to be the best for the year at nearly +3% at an annual rate and it now looks like it will be worse than a -5% annual rate. And the reason was because the economy is almost always reaccelerating in the fifth quarter following the first Fed rate cut. In fact, on average, real GDP growth is north of 3% in that particular the fifth quarter after the first easing. Never before has it been this negative this far into a rate-cutting cycle. Just another way of saying that this is not really a recession at all but something entirely different altogether (if you catch our drift).
I regret to say that Mr. Rosenberg, the best that America has to offer and the most pessimistic on Wall Street, was very wrong in his forecast of 2008 and 2009 GDP growth rates, made during December 2007, despite his very negative view of the economy and housing at the time. His forecast for the GDP growth rates for 2008 and 2009 was +1.4% and +2.0%, respectively. 2008 GDP is already negative and 2009 is likely to be. Pressure to be optimistic, maybe?
Americans are bred to believe in experts, a process of breeding easy dopes because most experts know that the best paying jobs are in the propaganda business. No one knows this better than economists, including economics professors. THERE IS LOT OF MONEY AND POWER IN THE BUSINESS OF BREEDING DOPES! Nothing can save America from economic disaster that has already begun because the experts are at the helm.
precious few details will emerge from what they call stress testing. In actuality we've already had several of them....it's called pricing inputs.
I was a tad disappointed (but not surprised at all) that the finance committee didn't latch on to this yesterday...instead the mantra of "hard to value" is continued to be put forth as a defense to these mechanisms.
Simply put..they have value...just not at the level they want them to be. This is academic......not enough people realize this disconnect IMO.
There is no historical precedent for what has happened in recent years. ac | 02.12.09 - 12:14 pm | #
That's mighty bold. But the paper claim to assets is wild. And we're going paperless... \t 1 currency almost [yogi] 1 currency almost [yogi] | Homepage | 02.12.09 - 12:22 pm | #
Well a lot of folks like Warren Buffet and George Soros have expressed that sentiment too, I'm really just echoing it.
It's purely a political play to create a sense of security for the public. If you read the NYTimes piece that CR referenced last night, the author glossed over the fact the fact that the 100 regulators were there as part of their regular regulatory activities; the imagery of all these regulators descending on Wall Street and "fanning" to the various banks did achieve the intended false sense of security.
1) no sense of security is registering on the market, where bankster stock is down.
2) political ploys usually get put on the frontpage of the newspaper. this story fell to the business section.
3) just as there is pre-privatization, this is pre-public relations. it is a step to set up future steps.
4) previously scheduled "regular regulatory activities" under the Bush Admn meant a Friday night sex party over at the Dep of the Interior. It might mean something else under this administration.
ac: agreed on your distinction between inflation and bubbles, but traditionally they co-occur because they're both driven by loose money. An unsolved question of the current bubble is how we got such a HUGE bubble, twice Sweden's by the rent ratio metric, with mild inflation. Traditional economic theory is that since inflation and bubbles co-occur, if you control inflation, bubbles will at least be restrained. That theory led the Fed very, very wrong in the past 15 years or so.
Fair Economist, Geithner controls the FDIC and Bair, the same way the Treasury has controlled the Fed since the $1.2tn balance sheet boost.
Furthermore everything about Bair up until today has shown her to be a sycophant. No way is she side-stepping Geithner in a public display. Not a chance.
I do agree Citi will likely be the first bank tackled, but this is Geithner himself marking his territory.
There is an outside chance that he had a few handpicked people amongst the gophers asking for certain things that they would have needed a subpoena for if it was in writing. E-mails, client lists, etc. The other thing I considered was that the teams had a singular mission such as documenting off-exchange derviatives, eg: What would a Citi bankruptcy trigger
if you have rising wages then inflation really doesn't matter. We didn't...and won't so it mattered greatly in this last time period.
Inflation does matter no mater what but it sure would have been less of a shock had the wage end of it actually risen a bit to compensate. It is a simplistic argument however if prices rise and so does your income you have less of a problem...a problem still exists. This is where they screwed up in not keeping the whole thing going for longer.
EHP - back in the 98/99 Chinese coastal CRE/RE crash the problem was papered over with policy lending and triangular debt between tame banks, SOEs, and politically-connected enterprises, ie to local party committees. The timing was good, because the currency could hold, competitors in SEAsia were in trouble, and the dotcom bubble was on the verge of inflating, thus after two years of holding pattern, there was an excellent source of final demand, so that the Chinese NPLs didn't get called in en masse. There was also the non-trivial portion of the economy represented by outfits funded by mil and sec interests.
Massive amounts of malinvestment were covered up through this process.
It worked then. The difference this time is demand. The reflation holding pattern cannot last the distance until OECD-wide demand returns.
I suspect that this week's series of PR stunts was to juice the bond issues, but there are more and gravely serious problems that none of the bill-mongering and pressers are addressing. And the system is global. The snippets on Euro banks are pretty disturbing when you line them up with commercial credit problems in the trading chain, especially Asia.
So, this is a long way of saying I agree with ac above...(!) It's inefficient, yes. But it helps me get my case sorted.
I for one welcome our new Manic Depression Zombie overlords.
European space scientists were aware of the potential for a close encounter between Russian and U.S. satellites before they crashed.
But the difficulty of predicting orbits and "noise" from thousands of pieces of debris made a definitive prediction of a collision impossible.
"The 'catalogue' of objects and debris showed a possible approach between the paths of the two satellites but an approach doesn't necessarily mean a collision, and you would need more information to be certain," said Philippe Goudy, deputy director of the French space operations control centre at Toulouse.
"It is not a case of two satellites coming together out of nowhere; they had been followed. The U.S. catalogues can give an alert but these are not necessarily completely exact." Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Economists� Forecast Only Off By 8%, Annual Growth Rate, for 2008Q4 GDP Jas Jain | Homepage | 02.12.09 - 12:27 pm | #
I was watching the news last night and shocked to here an "official" forecast coming out of the UK for a 6% GDP decline for 2009. I didn't get the source, but that's essentially a full blown depression forecast if it was reported properly.
As Yves pointed out, the tiny number of available regulatory employees can't make a dent in this analysis. As CR has pointed out, the banks themselves have to do the heavy lifting on the analysis. The only way this works is if the regulators have a credible threat of sending the company employees to jail if they don't cooperate and tell the truth.
So far I don't see any indication that anyone is afraid of the Obama administration taking decisive steps to put criminals in jail. Not the war criminals or the bank criminals.
Remember folks, what goes around comes around. Just wait until the scientists get revenge on the bankers. Trust me, neurological and biological virus' are way better than pretending securities are triple A.
Rents are a good base metric for property values. The sustainable return on assets for a rental is affected by interest rate changes. So the price-to-rent ratio should increase as rates decline and decrease as rates increase.
At todays rates I would expect the sustainable price-to-rent ratio to be about 30% higher than it was during the period 1987 to 2001 shown on the graph. That would suggest an neutral or mean point of around 1.43 on this graph. The ratio has declined past that point implying that prices have entering overshoot territory.
So far I don't see any indication that anyone is afraid of the Obama administration taking decisive steps to put criminals in jail. Not the war criminals or the bank criminals.
comrade dope albrt | 02.12.09 - 12:34 pm | #
Everyone please ignore at least most of what I said about OER. I was thinking of another country's statistic BLS def'n
Everything I said is effectively true, but opposite direction. OER is simply finding comparable houses on the market for rent. So the 1:1 ratio would still be rational if house prices weren't expected to increase above inflation.
"The only way this works is if the regulators have a credible threat of sending the company employees to jail if they don't cooperate and tell the truth."
ll showed that this threat is quite threadbare yesterday.
Furthermore everything about Bair up until today has shown her to be a sycophant. No way is she side-stepping Geithner in a public display. Not a chance.
I haven't seen that, at all. You don't get to that level without being ambitious, cold-blooded, and at least occasionally vicious. Bair went against the Bush administration in a big way when she was pushing for mortgage mods - she doesn't just do what her "superiors" tell her. And the difference between Bair bailouts and Paulson/Geithner bailouts is striking. Every Bair bail has put a huge hit on bondholders while every Paulson/Geithner bail has saved bondholders every last cent. You wouldn't get those kinds of policy differences if Bair were just Geithner's agent.
The rapid slide in earnings is one reason Japans economy probably shrank at an 11.7 percent annual rate last quarter, economists estimated, the sharpest contraction since the 1974 oil crisis.
Last night I listed the three probable categories for the banks: 1) no assistance needed, 2) additional capital needed, and 3) Nationalization needed. I believe this should be fully disclosed and announced publicly in mid-March.
You forgot the most like choice, #4: Failure Needed.
The problems in the credit markets can all be traced to this 'mark to market accounting' thing.
Similarly, the problem with peanut poisonings is the salmonella testing. If there were no salmonella testing, there would be no poisonings.
There, I aced my hearing. Can I run the Treasury now?
Counterpointer, Your the first one I saw with the term manic depression, and I latched on to it. Perfect description of the road ahead (steps shift excitation followed by overdamping)
On another matter though, do I not seem to have calmly made the right call before this week on the T-bond issues? ^_^
right, and by extension you wouldn't find Bair still at FDIC if Geithner controlled Obama.
FDIC Chair is an independent agency position. Congress intentionally wanted to the position to be insulated from political positions, so she can only be removed with cause.
CR, if you are not bracing for a further 50-67% decline in home prices, including SoCal, you are going to be blindsided.
My arithmetic -- patterned on the debt unwind and hit to GDP over '29-'33, followed by the restart of GDP over '33-'39 -- shows that, due to the fall in income and reversion to historic norms of home price to income, home prices will fall a further 50-67%.
Abandon all hope that the moderate Swedish home price downturn is the pattern here.
It is not.
Also, it is good to have Steve Ballmer onboard the Depression bandwagon, now.
In there own little way the FDIC has been acting exactly like the big banks and Treasury. I know the Bush admin wanted her gone (or at least to get in line with the program) however replacing the head of the FDIC would have been seen as another "oh shit" moment. Holding her up as a beacon of light sort dismisses the fact that they (FDIC) are acting in the same way Treasury is...that is to say putting 10lbs of shit in a 5lb bag. This process of folding "bad banks" with loss provisions in some cases of at or higher then 28% just doesn't work either. How different to the treasury's actions are the FDIC?
Wife works for a private company, pay is not great and benefits are fair. Last month they had a company meeting said they were healthy with little debt and did not expect any layoffs. Their cost savings measures would be limited to no new hiring and other less drastic measures.
This morning they announced layoffs. The situation is getting worse, quick.
Everything I said is effectively true, but opposite direction. OER is simply finding comparable houses on the market for rent. So the 1:1 ratio would still be rational if house prices weren't expected to increase above inflation.
Actually I think rent equivalence is a reasonable floor. When house prices are dropping, it makes sense to delay purchases as long as rents are below payments + costs. You're not giving up long-term appreciation; you still get it all by buying near the bottom. When prices are going up, it makes sense to buy as long as rents + inflationary increases are above payments + costs.
The result is that prices should cycle between rent equivalence and rent+inflation equivalence in a boom-bust cycle. Indeed, that has traditionally been how it worked in CA since the 70's, until the last bubble blew through the top.
Appears to me there's a little bit of skepticism about how WFC might perform under an unrigged stress test. $22B in goodwill might do that to a bank.
I am still bewildered about how auditors and CEO can sign off on a financial statement with GOODWILL representing close to 1/2 of market cap. Where's the equity?
At this point fear is driving the residential real estate markets below the fundamental levels. The fear will likely continue until unemployment begins to decline. I would expect that to occur in 2010.
"I am still bewildered about how auditors and CEO can sign off on a financial statement with GOODWILL representing close to 1/2 of market cap. Where's the equity?
bearly"
I haven't seen that, at all. You don't get to that level without being ambitious, cold-blooded, and at least occasionally vicious. Bair went against the Bush administration in a big way when she was pushing for mortgage mods - she doesn't just do what her "superiors" tell her. And the difference between Bair bailouts and Paulson/Geithner bailouts is striking. Every Bair bail has put a huge hit on bondholders while every Paulson/Geithner bail has saved bondholders every last cent. You wouldn't get those kinds of policy differences if Bair were just Geithner's agent. Fair Economist | Homepage | 02.12.09 - 12:39 pm | #
Mortgage mods -- Have you read that plan, do you forget where it was first floated from? That's right, it was Paulson at the Treasury. Bair was carrying Paulson's water, far from the individualistic act you propose. The key part was maintaining the full principal value, and then guaranteeing 50% (??) of any losses. That way the banks could be recapitalized in part and cleaned up without facing the public gauntlet. The plan came out first, and then she was the one of all organizations to carry it (the FDIC insures deposits, examines banks. The assets it does end up with get sold asap)
Do you remember the 180° turn on Wachovia? How many strings had to be pulled to get Bob Steele a better offer, not the least of which was a one time only selective rewrite of an IRS statute? Who was that that ex-post cancelled the deal with Citi for which there is an ongoing lawsuit
Every Bair bail has had a hit for bondholders?! She's the freaking FDIC, doesn't have the pocketbook of the Fed. You have no idea how generous any understimated loss sharing provisions are, and the subsidy passed along to bondholders.
I didn't say Bair was Geithner's agent, she's independent to an extent within her operating boundaries. Bair is a lapdog, and one dog whistle away from licking Geithner's feet
Here in Santa Cruz, Ca the price/rent ratio is way out of whack still. Just looking at listings, I'd guess we're 20%-30% away from parity right now and that's with distressed sellers clogging the market.
"The FDIC is managed by a five-person Board of Directors, all of whom are appointed by the President and confirmed by the Senate, with no more than three being from the same political party."
ditto for the SEC, and where is Christopher Cox and why did he not fill out the entirety of his 5 year term?
"The Securities and Exchange Commission has five Commissioners who are appointed by the President of the United States with the advice and consent of the Senate. Their terms last five years and are staggered so that one Commissioner's term ends on June 5 of each year. To ensure that the Commission remains non-partisan, no more than three Commissioners may belong to the same political party. The President also designates one of the Commissioners as Chairman, the SEC's top executive."
The President calls the shots. He asks people to resign when he does not want them.
Actually I think rent equivalence is a reasonable floor. When house prices are dropping, it makes sense to delay purchases as long as rents are below payments + costs. You're not giving up long-term appreciation; you still get it all by buying near the bottom. When prices are going up, it makes sense to buy as long as rents + inflationary increases are above payments + costs.
I think there is one peice missing from that. The money that is spent on rent is essentially thrown away so the break even point has to factor that in. Spend $20k on rent in a year and you can "afford" that amount of loss on the home. Well, that plus the income tax savings. Ya, costs have to be factored in as well.
This morning they announced layoffs. The situation is getting worse, quick.
The Lorax | 02.12.09 - 12:49 pm
I worked for one of the first online content providers and services. They said the samething. Then we had layoffs. They said all was ok now. We just had to tighten our belts.
They had Friday cook-outs to improve morale and show that we were all in this together. Meanwhile the CEO was negoiting the sale of the company to a competitor.
Ballmer said that economic growth in the last 25 years was fueled by innovation, globalization, and debt--and that the current levels of debt were unsustainable. "In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent," he said. "Last year, private sector debt as a percentage of the GDP: 300 percent, far more leverage."
Steve Ballmer
Microsoft CEO Steve Ballmer: "This is a once-in-a-lifetime economic crisis."
(Credit: Microsoft)
His warning of a protracted downturn that could become a depression comes amid a stock market that is down by more than 40 percent from its October 2007 peak, and housing prices in many metro areas that have been falling consistently since July 2006--a feat not equalled since the Great Depression.
"In my view, what we now have will be a fundamental economic reset," he said. "The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate."
EHP - I forget your pick on the bond issues. I was picking disaster, but may be too early for that. There is a rather Broward point in the yield curve, ie kinky, still at the 1-year mark, and 10 and 30 are still chasing yields higher. But I suspect today's issue will be fine, given the news out of China overnight.
That is, goddamn the pusherman, but you're the only one with the sh!t I need.
""In my view, what we now have will be a fundamental economic reset," he said. "The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate."
mock turtle"
Did he really say that or did he just repeat it after reading it here?
--
"Way OT, but you gotta feed the Jas troll once and awhile"
DOW36000,
I get daily conformations, including on this blog, that Americans are irremediable dopes. I understand the power of the Great American Propaganda Machine. Most Americans, including most here, delude themselves by believing that they are not dopes. Dopes in denial! That is America of today, folks. Let us see how badly this all ends.
If CR were smart he would have limited himself to economic reporting and not to forecasting! But even the best in America succumb into dopey behavior once in a while.
Also, why the heck would it have been Bair secretly sending out new examiners to banks without Geithner's knowledge?
The only real thing he committed to in his 'plan' speech was to audit the $100bn+ banks within 30 days. Are you really suggesting Bair was the mastermind?
<i>Zephyr(Unrated) writes: At this point fear is driving the residential real estate markets below the fundamental levels. The fear will likely continue until unemployment begins to decline. I would expect that to occur in 2010.</i> ------------------------------------------------------------------------------ Bwahahaha. Still in phase 1 Denial? You mean we don't still have a massive bubble in asset prices? You mean to tell me that prices relative to incomes are approaching historical levels? You think that speculators have already been driven from the RRE market? You think that rents will be stable as unemployment rises to levels not seen since the depression. You think that people with negative savings will suddenly be able to put down 20% to buy real estate? You think that the decline of equity prices won't spill over into the real estate market?
Excuse me, but fundamental levels are way lower, and that is before you consider that we are just entering a deep recession &/or depression.
We are going to see another 20-25% off prices at a minimum.
you cited two passages relating to the appointment of the chairs; kind of irrelevant for the point that I was trying to make. Please go find and cite the statutory provisions for removal.
the point that no one has mentioned regarding stress testing the $100bn banks is that the testing had to be done anyways for compliance with the Basel II Accords.
Not that radical of a departure, or necessarily setting the table for pre-privatization.
@ mock turtle
You have to look at Ballmer's motivation, too. The Wintel empire is doing a Last Man Standing play. They are calling extreme doom in the hopes that it will hit their competition, such as it is, hardest. They are also lowering expectations pre-emptively, in hopes of cushioning damage to the stock price in coming quarters. They also intimidate their own employees, this way, pre-empting salary increases and giving an excuse to cut out the deadwood via draconian layoffs. Ballmer is playing several sophisticated games at once, while looking like a PR hero for being "frank and outspoken."
"Crush all who oppose us, by any means necessary, including psychological warfare"-- that's the way they've played for 25 years. That's why some people resist becoming "microserfs." That's why Bill appears as a Borg on slashdot.
The propaganda machine will be caught off guard when the paychecks stop coming....then we'll have more of a classic, hard-line propaganda system directly from the government...not the private corporate kind.
Counterpointer, I forecasted no big whoops this week. Too early. Yields would still be very low historically, China wouldn't stop buying, etc.
You are right, just too early. Will come closer to when trade balances force currency realignment, financial flows alone are not self-sustaining. My Almanac is forecasting a long hot summer
W00T There are a lot of other costs, and it's fine to estimate them to be an even break in estimation. You get the tax break in America on mortgage payments, but as you can see it didn't skew much during the early 1990s. There's maintenance, taxes, and other costs covered by rent. The main differentiator is expectation of appreciation, which forms the bubbles Fair Economist wrote about. They're bubbles because you can never make the world infinitely wealthy through pure will power.
A 23-25% drop from here is not out of the question, especially if you consider rent prices are also dropping. Prices won't rise until it is cheaper to buy than rent because there is so much inventory out there. Shifting inventory to rentals will expedite the price decline, and despite bank hopes for a mortgage mod lottery or current foreclosure terminal velocity, they cannot hold them forever.
yes, the statute says cause is needed to dismiss the chair of FDIC and SEC. no argument there.
my point is
1) that they can be asked to resign.
2) SEC Chair Cox is gone, left before his term ran out. He was not dismissed for cause. He resigned.
3) If Obama had not wanted Bair, she would be gone by now, too. But she is still there and she is a player in the decision process.
4) Appointed by the President means, effectively, within in certain circumstantial limits, at the pleasure of the President. That is why Cox is gone and Bair is still there.
5) The circumstantial limits were tested by Nixon (the Saturday Night Massacre) and by Bush (the DOJ case).
The wall street banks will not allow themselves to become transparent and with crooks inside or near The White House, TARP will continue on, without accountability and America will follow Japan in wasting 15 years on saving face for the elite.
Basel Too, Thanks for bringing up Bair's independent term appointment. As long as Bair and Bernanke can do their jobs technically, and especially if they take marching orders, there is no reason to go through the hassle (and public cost) of removing them. I mean if I were in their position and I couldn't do my job with outside ressources and help to begin with, you bet your bottom dollar I would happily accept the help and abrogate my responsibility up the chain of command if I think the war is already lost.
"We are currently having a national discussion over what NOS to migrate to.
Its MS Server 2008 v. *nix.
I am not even bothering. management will go MS because MS means cheap, plentiful labor."
I will say that although *nix administrators are harder to find and more expensive.. you also only need about 10% of the admin staff in a *nix environment that you need in a windows environment
I also will say that windows on the server side is pretty much crap... but I do like XP (not vista though)
EHP: For sure. I wasnt arguing for the "time to buy" crowd. Just stating that there were plenty of other things to factor in. Where I live, price/rent is still so far out of whack, money spent in rent is a fairly insignificant portion of a 5% drop let alone a 20+% drop.
Have you read that plan, do you forget where it was first floated from? That's right, it was Paulson at the Treasury. Bair was carrying Paulson's water, far from the individualistic act you propose.
Paulson's and Bair's plans were very different. Paulson's plan was a Potemkin village - the mods required voluntary cooperation from the bank, and assorted conditions that made it a no-go. Bair has pushed to force mods on bailed banks.
Do you remember the 180 ° turn on Wachovia? How many strings had to be pulled to get Bob Steele a better offer, not the least of which was a one time only selective rewrite of an IRS statute? Who was that that ex-post cancelled the deal with Citi for which there is an ongoing lawsuit
Bair and Paulson fought for a week over that. She certainly wasn't his agent there. Paulson won that one, probably because the Wells Fargo deal cost the taxpayer less in the short run.
Every Bair bail has had a hit for bondholders?! She's the freaking FDIC, doesn't have the pocketbook of the Fed. You have no idea how generous any understimated loss sharing provisions are, and the subsidy passed along to bondholders.
Sure, Bair's motive seems to be primarily preserving the FDIC fund. Nonetheless, that is her motive, and it differs from Geithner's. I haven't seen any of her big bails result in excessively generous bondholder compensation - and how do you square that with the way she raped the WAMU bondholders? Do you think Paulson and Geithner were happy that she probably about tripled the WAMU CDS event to save the uninsured depositors? And made it basically impossible for banks to issue bonds while she was at it?
ova - in that case put it on iPod and go to Wall St to hang out for a while. At this rate you'll be joined by several thousand if you put the word out on CR, Mish and Yves...
you bet your bottom dollar I would happily accept the help and abrogate my responsibility up the chain of command if I think the war is already lost.
Just another meaning of socializing the losses. At this point, nobody wants to be a bagholder. Reminds me, where the hell is Chris Dodd in this mess? He has oversight over the sector, and last I heard, he was modifying some of his mortgages.
We are going to see another 20-25% off prices at a minimum.
I live a suburb of NYC (NNJ). One of the few with direct service to Manhattan. Prices were really sticky throughout 2007 and the 1st half of 2008. Then the slide started.
Over the last two months the market cracked. Huge price declines and literally NO sales. I'd say we are 33% off the peak and it looks like 50% off is just around the corner.
Crude is down to, what, $35/bbl? And my local gas went up in price $.05 (yet again) today.
Which begs the question:
Who's hand is in the till now?
Outsider
.
I'm glad someone else noticed this. Gas over $2.00 per gallon here, up from a low of about $1.50, IIRC. Maybe they're hoarding cash against a further fall in oil.
I'm on the Ballmer was just speaking frankly boat. Someone can still be a jerk or headcase without their every word going towards justifying that perception.
Honestly if a company like Redhat plays its hands right, it is better suited than Microsoft to a lean and flexible business model that thrives in this environment. As for scaring employees, Microsoft and their competitors for workers have all already been laying off not only contractors, but significant employees. They don't need to drop the daily newspaper on the table at negotiations, it's already been in the corporate newsletter
" Just stating that there were plenty of other things to factor in."
While I don't disagree with you technically, I believe people (non-flippers) make decisions to buy a house like this:
If they think home prices are going to increase, they will consider buying. If not, they will wait and rent.
If the want to buy, can they afford it? Can they get the financing and can they make the down payment.
Right now the answer to #1 should be no, so people shouldn't even get to #2. If they did get to #2, however, the vast majority will no get financed or have down payment.
Flippers don't think, so they don't encounter this process.
Also, why the heck would it have been Bair secretly sending out new examiners to banks without Geithner's knowledge?
The only real thing he committed to in his 'plan' speech was to audit the $100bn+ banks within 30 days. Are you really suggesting Bair was the mastermind?
As you recall, the plan was a compromise between Geithner and other agents within the Obama administration, particularly Axelrod. Geithner's not the only player in that plan. The agents aren't being sent out without his knowledge. However, there are probably factions within the administration that really want to know what's going on at Citi, and others that hope to use a bad situation at Citi to embarass Geithner. Maybe Geithner was forced to accept an audit of Citi, or maybe he was forced to accept an audit controlled by somebody else. He doesn't have sole control.
Bair is a reasonable candidate for somebody who would want to force an audit on Citi. She's going to know things are shaky there, and she may have personal motives to embarass Geithner. Plus if it can't be saved, it goes in her lap, and she will need to be ready for that one.
"We are going to see another 20-25% off prices at a minimum.
Sure. That could happen. But I believe it is all overshoot at this point. This decline is a nasty one and I expect a strong overshoot. Another 20-25% would be great! I would love to buy at those levels, if I could be so lucky as to have prices fall that far.
GH, Be careful. Zephyr doesn't want to know the truth. The truth could crush him.
Very funny! However, with most of my money in cash (since 2007), and my real estate nearly debt-free, I can not be crushed by falling prices. In fact, the lower they go the better off I will be. I only buy in the recovery phase of the cycle. And I sell late in the bubble phase. I have been waiting since 2003 for the next buying opportunity. I can wait longer.
Fair Economist, Well it's been narrowed down to a difference of opinion, save for the idea that it was Bair who chose to send in the new examiners publicly. I'll leave it at that
Provisions to impose a penalty on banks that paid hefty bonuses and to cap pay at $400,000 for all employees at firms applying for additional government funds did not survive the compromise, sources said.
The crude price that is getting hammered is likely Cushing delivery...it is a land locked delivery point where the current supply of storage is just about stuffed to the rafters. Fair amount of b!tching globally about this being rather unrepresentative of the global crude market...
Plus refining capacity utilization rates are going down as profitability got hammered, so refiners are reducing capacity and doing turnarounds or other maintenance activities. Refining is a game of scale, so as volumes are reduced unit costs will go up.
Expect more of this with retail goods after the wave of BK's - buy big when the real fire sales occur - afterwards, capacity reductions may well result in price increases.
Comrade Misean is Dope writes:
Here we go: "LA Supes Sue State"
They are a few days late to the party, several other counties are also suing. Of course LA with 10 million people and massive budget is most significant.
Constitutionally, all local governments exist at the whim of the State - but I bet Caulifornia has legal obligations that create causes of action for the counties and municipalities.
There are rumors of yet another State budget deal, but I won't believe it until I see a freak-out at Flashreport.org
"Expect more of this with retail goods after the wave of BK's - buy big when the real fire sales occur - afterwards, capacity reductions may well result in price increases.
citizen energyecon"
You have just made Rich's argument for buying commodity ETFs now.
So I've mentioned many times that I'm massively short GS via options, because I believe that if their level 2 and 3 assets were marked to market it would be obvious that they are massively insolvent like just about every other financial institution. In fact, given the smoking crater that was Lehman, I don't think it would even be close.
But now that they're talking about going in and stress testing these banks, I'm getting a little nervous. Assuming that the process is fair and accurate, we will soon see if the emperor is wearing clothes.
Could GS really be solvent, as Blankfein insinuates?? Even if they are insolvent, what are the odds that the stress test will be honest and reveal it?
Is the Obama administration, Geithner et. all taking the first step to sell the public on nationalization? Roubini certainly feels that there is no other option. Could they really be doing the right thing??
President Obama even met with House Republicans more times in two weeks to discuss this legislation than President Bush did with House Democrats in two terms.
The Republicans were certainly allowed in the process, but they wanted to obstruct.
Ok, so what's the official party line on deleting from the stimulus plan the requirement that contractors not be permitted to hire illegal aliens? That this is an archaic "mental construct"? That we're talking about "jobs Americans won't do"? And has it finally sunk in on Club Progresso that the stimulus bill contains provisions designed to insure that university profs will not be able to obtain better medical care than gangbangers?
I regret to say that Mr. Rosenberg, the best that America has to offer and the most pessimistic on Wall Street, was very wrong in his forecast of 2008 and 2009 GDP growth rates, made during December 2007
Just as no serious trader listens to analysts, no serious forecaster should listen to Wall Street economists.
Do you think Paulson and Geithner were happy that she probably about tripled the WAMU CDS event to save the uninsured depositors? And made it basically impossible for banks to issue bonds while she was at it? \t Fair Economist | \t \t \tHomepage | \t02.12.09 - 1:19 pm | # Do depositor claims usually come before bondholders? Either way, hitting uninsured WAMU depositors would've caused a big panic event, I think.
The "AAA" credit ratings of both the United States and Britain are "being tested" by the strains in the global economy, while countries like Germany, France and Canada are proving more resistant, Moody's Investors Service said on Thursday
Really.. that's the exact opposite of what I just read in the financial times. According to them, Moody's is making three tiers of AAA sovereign debt ratings, those that are likely to stay, those that will be challenged, and those which are on downgrade watch. The United States, Germany, France, and Canada were all in the top tier.
Ok, so what's the official party line on deleting from the stimulus plan the requirement that contractors not be permitted to hire illegal aliens?
Nil | 02.12.09 - 1:36 pm | #
Probably since it's already illegal? Why reiterate that contractors not be allowed to break the law?
2) SEC Chair Cox is gone, left before his term ran out. He was not dismissed for cause. He resigned.
3) If Obama had not wanted Bair, she would be gone by now, too. But she is still there and she is a player in the decision process.
Cox headed the SEC during some truly extreme regulatory malfeasance, malfeasance that's already on the front pages and in Congressional hearings. He has a big gun pointed at his head, labeled "public humiliation and criminal procedings". Bair faces no such problems.
I can't think of any time a new Pres forced out an independent appointee. It just doesn't happen. If he did try, Bair could humiliate him politically precisely on the grounds of putting political pressure on an independent employee. The Republicans would LOVE that and would run with it successfully for years.
Cox vs. Bair is just the way things work. Independent appointees caught up in massive scandals resign. Independent appointees under new Presidents keep their jobs. That's the way it's supposed to work, and that's the way it does work.
As for scaring employees, Microsoft and their competitors for workers have all already been laying off not only contractors, but significant employees. They don't need to drop the daily newspaper on the table at negotiations, it's already been in the corporate newsletter
EvilHenryPaulson
.
Evil, that's not exactly what's going on inside the machine. There are still job reqs going out, still bonuses being paid, rather quietly. Along with layoffs. The internal politics is much more complex than it appears from the outside.
Hint. Ultimately, Microsoft needs Intel. But Intel could very well develop its own software platform, if it so chose. It was an arranged marriage, and there is a lot of mutual hatred there.
As for the small fry, like Redhat, I don't know anyone with enough financial stamina to survive a "nuclear blast" downturn. IMO they will be eaten. We shall see.
The tide is receding, and all the self-proclaimed geniuses of the past 10 years are being revealed as the morons they really are. Ben Stein is a joke and not even funny.
Elvis(Unrated) writes: \t"You are probably right but that ship will never sink. Barley"
Until it sinks, we won't hit bottom. ------------------------------------------------------------------------------------ That's what they said about the Titanic. I guess this is going to be my Taleb investment position. Given the political support for GS it is unlikely, but the potential payoff is huge. IMO, they're going to need a lot more handouts to weather this storm, and those giveaways are starting to be untenable.
They had Friday cook-outs to improve morale and show that we were all in this together. Meanwhile the CEO was negoiting the sale of the company to a competitor. nova | Homepage | 02.12.09 - 12:54 pm | #
Happened to me back on 2000. Workd for a sweet old-school local Seattle company that got bought by Clear Channel. The lies and layoffs were ruthless. Now I work in academia, and the ivory tower types think it can't happen here. Ha!
The govt is selling nationalization. They will make us beg for it. Then they will do it under protest, so we can't complain when our pensions/401ks/mutual funds become worthless.
Do depositor claims usually come before bondholders? Either way, hitting uninsured WAMU depositors would've caused a big panic event, I think.
ille_vir | 02.12.09 - 1:37 pm | #
Insured depositor are ahead of bondholders, uninsured depositors are (supposed to be) with them. I agree that hitting the uninsured depositors risked a panic (IndyMac was a mess) and Bair wanted to avoid that. Bondholders can't run; they're stuck. So her WAMU policy, while extremely unfair, benefitted the FDIC, which is why I think Bair did it.
EvilHenryPaulson writes:
FE
That last post was written prior to your 2nd reply, if it matters
It doesn't. Neither of us has bugs in the Obama administration war room so we'll just have to agree to disagree for now.
I also post comments to an irc channel as they appear on haloscan. Click for a web irc interface: Mibbit IRC client widget (Or join the irc server directly: irc.realize.org:9996 #calculatedrisk)
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Gavshire Hathaway, They were early to bet against the housing bubble, but they only made the bet to a limited extent because prior to the summer 2007 (?) strategy meeting, they were massively long on it. By far the biggest issuer of securitizations relative to its capital (BBerg used to run a monthly leaderboard), and the common practice was to sample your own product. Since things have gone south, their securitized products have done notably worse than average.
As things fell below whatever they hedged to, their Level 3 assets have grown to disturbing proportions.
At best, they're as strong as Morgan Stanley.
They've managed to keep deals flowing despite the decline of PE and IPOs. But their commodity business has been neutralized ever since IB consolidation such as when JPM took over Bear Sterns and now controls around 75% of COMEX orders
They outperformed on the run up because of housing, and later oil. Now that they can't snowball anything, expect the losses to show up eventually
It is risky betting against the government however
One thing complicating this whole problem is the geopolitics of screwing over foreign bondholders of these banks. Max | Homepage | 02.12.09 - 12:18 pm | #
That's why I wonder if the FBI investigations are a way to divert anger. "Not my fault, we have to prosecute criminals". And if the process of prosecution brings down the whole shebang......whoops.
Zephyr writes:
... In fact, the lower they go the better off I will be. I only buy in the recovery phase of the cycle. And I sell late in the bubble phase. I have been waiting since 2003 for the next buying opportunity. I can wait longer.
Proof positive that the speculative fever in housing is alive and well....
Insured depositor are ahead of bondholders, uninsured depositors are (supposed to be) with them. I agree that hitting the uninsured depositors risked a panic (IndyMac was a mess) and Bair wanted to avoid that. Bondholders can't run; they're stuck. So her WAMU policy, while extremely unfair, benefitted the FDIC, which is why I think Bair did it. Fair Economist | Homepage | 02.12.09 - 1:47 pm | #
I see. Thanks for the explanation. Trying to learn this stuff as I go...
Happened to me back on 2000. Workd for a sweet old-school local Seattle company that got bought by Clear Channel. The lies and layoffs were ruthless. Now I work in academia, and the ivory tower types think it can't happen here. Ha!
Joanna | Homepage | 02.12.09 - 1:46 pm | #
Yeah, me too. Did the tech stuff in 1998-2002 boom and bust, now at a state university and I'm outwardly cheerful about the situation and inwardly planning for a year without significant pay.
Intel doesn't need to write an OS, Linux, Sun, *BSD (MAC), all run quite acceptably on it's processors.
Nostrovia,
Comrade Misean is Dope
.
Yes, I know that. That's part of my point. But they have to optimize anything they use, and they might as well eat the small fry if they're going ultra-cheap.
Swedish inflation was high during the bubble (10%) and fell during the bust (2%)
The Swedish Krona devalued sharply when the bubble burst from 5 SEK/USD to 8 SEK/USD. Beggar thy neighbor?
The mortgage rate does influence the value of a house. But, so does the rental growth rate. The higher the spread between these two values the lower the ratio of price to rent should be. During the bubble this spread was much smaller (5% mortgage, 2% rental growth, 3% spread) than it is now (5% mortgage, 0% rental growth?, 5% spread). If you value a structure as the PV of future rental streams this becomes pretty clear.
I personally think rents are falling around 5-10% in urban areas right now, so the Price/Rent ratio should go well below 1.
Loves to rattle the Jas cage.
If you read between the lines for the linked story, it is pretty much saying
"Dopes, don't worry, be happy"
I just thought you'd like it
Counterpointer writes:
Actually I'm reading some bad shiite in the 30-year auction. For success and confidence there should be fewer holes in those numbers.
After initial knee jerk sell off, 30yr is rallying again. There will not be inflation until credit creation begins anew (try 5 years).
bernstein at ML: if you are negative on the financials, like I am and the consensus here...there's no way you can be worried about inflation now - it's DEFLATION everywhere. 3 years from now? maybe
All of these great proposals to get them bad guys and nationalize, etc.
Have you and your compadres given any thought to the amount payable in case of such event on Credit Default Swap contracts?
And if so, will Feds subsequently have to nationalize all other parties that would lose billions on such contracts and subsequently, all parties doing business with them?
Or, are you (like most others) simply warming the air just for the fun of it?
something about accepting less then was tendered has me believing that even the "plenty of indirect bidders" are trying to force yields up.
It appears that it went ok...however alot of the tendered bids weren't what the Treasury would like to be sending out the door yield-wise. Hence the need for these indirect bids to lower the issued return that ultimately goes out the door.
In any case I wouldn't be rushing to put my money in 30 year based on what the 10 returns......not much for 20 years of hold and hope.....
2kt writes:
And if so, will Feds subsequently have to nationalize all other parties that would lose billions on such contracts and subsequently, all parties doing business with them?
That's it, I nominate the name for GD2: THE NATIONALIZATION, if Ireland or the Brits don't claim it first.
The biggest difference between the US credit crisis and the Swedish one in the early 90s is that the Swedish one was nearly only about commercial real estate. House prices did drop a fair bit, but this was collateral damage, not the root of the problems. The credit losses from individuals' mortgages were nothing compared to the losses from CRE mortgages (loans in Sweden are recourse so there was no jingle mail and things like that).
That also explains why home prices didn't drop much; there was no follow-through and not much of an overshoot.
When you understand that CRE was the problem in Sweden, comparing home price charts become quite meaningles.
Almost everything we now do on a regular basis, from sending emails, taking photographs, writing text messages, calling on our cell phones, downloading music, typing on our computers, and using our credit and ATM cards, all of it generates information. And every single day the endless information generated by our ever-expanding digital footprints is recorded, tracked, searched through, sold, analyzed, and saved forever.
Besides a transparent stress test, I really like Yves idea of selling out the good assets and deposits of failing banks into a new good entity, leaving the bad bank with its own bad assets. I think that would be the best repair for the economy, the global economy and the taxpayers. And it would make financial wizards think twice before tossing all caution to the winds again. How things wind down for the leftover bad banks is either a controlled bankruptcy or something I can't imagine yet.
The last two graphs show prices trending back toward the mean until the denominator of the dependent variable in this time series declines then all bets are off.
It is only a matter of time before the graphs practically stalls.
Nemo, Nemo, Nemo!
This seems on topic, but hey...
The last time super-high heels were in vogue was during the Depression that followed the 1929 Wall Street Crash.
Ali Hall, editor of fashion magazine Look, told The Sun: "All the main shoe trends are mega high and even more death defying."
Feminist academic Germaine Greer has predicted that the popularity of high heels will collapse as the recession worsens.
"Now is the towering shoe moment of the Noughties, which will be followed by the inevitable fall," she wrote.
Women may enjoy window-shopping for towering stilettos but "few of them will have the spare cash to invest in shoes that can be safely worn only in bed," she added.
The historian Amanda Foreman blamed the growth of high heels on male fashion executives who want to restrain female rivals in the jobs market.
"These shoes are obviously not for the working woman, they aren't designed for cobbled streets. They're not real life, but a little fantasy," she said last month.
The "AAA" credit ratings of both the United States and Britain are "being tested" by the strains in the global economy, while countries like Germany, France and Canada are proving more resistant, Moody's Investors Service said on Thursday
Bonds News | Reuters.com
Moody's is really being generous here.
Yahoo headline
Analysis: Maine's GOP senators are key to Obama agenda
Brilliant analysis !
do the math... add 2 Maine senators gets you to 60
Brilliant analysis !
"Just to repeat, the key lesson in crisis resolution is transparency. I hope the results of the bank stress test will be made public, and the zombie banks clearly identified."
Don't we already know who they are?
When we find out "officially" will the SEC bring charges against the board's and CEO's for securities fraud?
Wells Fargo is crumbling today...
I think the biggest problem is that people have been told that investing is a form of saving - the form of saving, in fact. And they believe it - even when their savings are being ripped out of their hands. So the problem, through that lens, must be investing in the wrong things, rather than the whole fact that what you put into the markets should be what you can afford to lose, not what you depend on for basic things.
Add to that the fact that the society has transformed basic things like security in old age and education into things that can only be achieved through fake saving (investing) in a market that goes up, rather than things ordinary people could have, and it is no wonder that people who live in this never-never land cant grasp that it is a world of myth. That is, they know they are not going to be able to eat during retirement or send their kids to college on their income or on regular savings. But they havent yet grasped that the situation has changed radically and the choices are now - change the system or accept that a college education and independent retirement are no longer choices for most of us.
- Sharon Astyk
We cannot start our recovery until we have completed our bankruptcy. Go ahead now and do the denial, anger, bargaining, and depression. Open the window and scream. Then put the fate of the world ahead of the obvious reasons we shouldnt do this. Yes, we will reward a carnival of bad behavior and make people believe they can get away with it. Should we chose massive global depression instead?
Then ask yourself: Is it possible our property market can deteriorate by 40% and no systemic bankruptcy follows? Is the bubbles very definition homeowners taking on debt they cannot afford to buy houses priced for a Ponzi flip? Where is that bad debt going to go?
Plan Orange:
Plan Orange: The Mortgage Crisis Killed Quickly « Your Mortgage or Your Life…
Check out Plan Orange and let me know what you think...
the crux of the biscuit....is the transparency.
Ciao
MS
It's been 5 months since the AIG thing and the gov'ts still scratching its ass..erm...head. 30 days ought to be enough time to get the rubber stamps made though...
Nostrovia,
Transparency is not an option to those who know they're naked in the water.
It's still all gamesmanship and a question of who gets to tell the lies for now.
also:
braaaaiiiinnnnnss...
OT: Trade
Before a factory in China will shutdown, their owners will have tried to design their own products and try new markets. Paddling upstream through rapids in a canoe with a broken paddle... The idea of boosting domestic demand, which is needed for the good of the global economy, will only keep them occupied and without sufficient results. They won't as a first choice risk depleting their reserves substantially, want to have a cake and eat a cake with only 1 cake in the room.
What I've recently been considering is what is the current minimum trade necessary. I mean we've made theoretically great advances with supply chains. A factory producing common goods will most likely be best in breed and dominate several countries, while competing in a few more. However if the wins and losses prove unbalanced as we recede to a minimum level of trade, what's going to happen? It's unlikely that capital investment would swoop in to take advantage of a cheap currency, not quickly at least. Suddenly smaller countries' currencies become much more illiquid, and the lessons of 1998 are still too fresh to try a peg
Will we see bizarre bartering for common goods whose production is now concentrated in fewer countries ? Will trade socks for shoes, robots for coffee mugs ?
This is beginning to feel like a meteor strike. A lot of smaller crashes happening before the big one. You could easily see it coming, if you knew where to look.
Anyone have further thoughts on Nightttime Theory's stunt of dispatching minions to the banks? It was timed during the bond auctions, while the bank heads were away, recently after a few banks dreamed out loud about paying back TAR{ money, and while his desired crisis plan is at an embarassing stalemate. It's not about bank health because it's not only too few, but they would have to remain there on an ongoing basis with automatic possibilities inside them. Since it's not about bank health, or anything they already knew or could request, the $100bn limit is arbitrary and meant to conceal a few targets. It could have been to have his own troops in the "enemy's" camps while the bond auctions were going on, very unlikely.
The most likely thing is that it was a negotiating tactic to insult and intimidate the bank execs. Clearly they have not been cooperative, and that must mean he has been asking them to do something they are not legally obligated to do. The government is not legally obligated to bail out the banking system, but we all realize the practical necessity of one along with the banks themselves. So Geithner is just demonstrating that there are things he can legally do to play hardball back. Maybe it is meant to scare away foreign investment to trap them under the TARP. Also Geithner was the one getting called in to the office late to work on time limited "sudden" disasters needing him while at the NY Fed, and he's probably personally sick of dealing with Dick Fulds of the world. I could see him wanting a better idea of when the next disaster will be for planning purposes, but anything short of a significant ongoing presence won't be of use. Even the current crew must be a bunch of unexperienced gophers that can only complete simple direct tasks. Should have hired some of the laid off bank employees and given them results based awards.
All in all, I only see the action as a somewhat foolhardy manner of negotiating, with a side serving of what in theory is a good PR exercise to disaffected voters
so do we need to go to a price:rent ratio of 1.0 or will it dip below that and then come up slowly?
Subcommander Doom,
A policy of deliberate inflation is a REAL beyatch!
Nostrovia,
Is it price to rent ratio that matters, or monthly cost (including mortgage, interest deduction, property taxm insurance) to rent ratio that matters? With low mortgage rates as is typical now, the equivalent rent is different than when rates were 8 or 9%.
Looking at that graph makes me think that a lot of the "bubble" in Sweden might have been inflation - i.e. looking at the difference between rents and prices may be a better indicator of the actual bubble. If so, then the US housing bubble might be bigger in real terms (about above 80% normal IIRC, whereas if you assume rents reflect inflation, the Swedish bubble looks more like 40% above normal).
Also, this isn't a housing bubble. This is a global super bubble involving real estate, stocks, bonds, commodities, currencies etc.
There is no historical precedent for what has happened in recent years.
Ultimately the problem might not be zombie banks so much as zombie countries, and possibly Zombie Earth.
it's not just the banks ya know - what kind of stress test will there be for the various (sic) ratings agencies and various (sic) regulators (not just in the usa) - we have a global problem, and it cuts across many different kinds of organizations/groups (banks, insurance, pensions, ratings agencies, regulators, central banks, politicians, realtors, realty assessors, etc.) - lets not get too myopic here on the banks
but ofcourse ridding ourselves of zombie banks would be a good step in the process
zombie earth aside, we now have an internal discussion within the Fed about nationalization....
Bernanke is against it, Geithner is against it, Summers is against it, and that just does not matter very much because the President calls the shots and he went on national TV and said nationalization worked in Sweden.
As the Geithner outline wobbles, as it must, the discussion will keep coming back to the one approach that has worked, and the differences between the US and Sweden will be cast in a different light.
Maybe it is meant to scare away foreign investment to trap them under the TARP.
EvilHenryPaulson | Homepage | 02.12.09 - 12:09 pm | #
One thing complicating this whole problem is the geopolitics of screwing over foreign bondholders of these banks. There are more than economic problems to consider.
So what happened in Sweden that allowed rents and home prices to increase 180%? Inflation?
"These shoes are obviously not for the working woman, they aren't designed for cobbled streets. They're not real life, but a little fantasy," she said last month.
doc holiday
.
Meh. It's not either/or. If you guys want to understand fashion, and therefore get some insight into retail, go get a copy of Lucky for this month. Heel heights all over the place. It's a much more complex signaling system than you realize.
And don't pay too much attention to the old party-line first generation feminists. So last century.
Anyone have further thoughts on Nightttime Theory's stunt of dispatching minions to the banks?
EHP:
Yves wrote a pretty good piece on it. It's purely a political play to create a sense of security for the public. If you read the NYTimes piece that CR referenced last night, the author glossed over the fact the fact that the 100 regulators were there as part of their regular regulatory activities; the imagery of all these regulators descending on Wall Street and "fanning" to the various banks did achieve the intended false sense of security.
My biggest concern is if speculators targeted a bank that has passed the stress test. If such bank failed, then how can anyone have confidence in Geithner and the Administration?
"Looking at that graph makes me think that a lot of the "bubble" in Sweden might have been inflation - i.e. looking at the difference between rents and prices may be a better indicator of the actual bubble."
That's how all of them started and will continue to be managed. Inflation=bubbles in no certain terms.
Ciao
MS
Owner Equivalent Rent is not the monthly/annual rent cost. It prices a house from rent costs, which is why it (it's huge as a proportion of CPI) understated inflation for a long while. It takes into account mortgage rates.
A House Price:Owner Equivalent Rent would imply that people are making rational decisions given present information.
zombie earth aside, we now have an internal discussion within the Fed about nationalization....
Bernanke is against it, Geithner is against it, Summers is against it, and that just does not matter very much because the President calls the shots and he went on national TV and said nationalization worked in Sweden.
joe shmoe | 02.12.09 - 12:17 pm | #
Sounds like the financial power elite are circling the wagons to maintain their tyranny of incompetence.
These stress tests mean certain death for some of the big US banks.
There is no historical precedent for what has happened in recent years.
ac | 02.12.09 - 12:14 pm | #
That's mighty bold. But the paper claim to assets is wild. And we're going paperless...
Why did rents go from 100 in 1984 to 180 in 1992. That is 7.6% inflation. Was inflation that bad in Sweden? We are not seeing that kind of rent inflation in the US right? Can you plot US rents on top of the nominal Case Shiller so we can see that? Also, it would be nice to see nominal house price predictions given that the P/R ratio goes back to 1.0. I would guess it would be about a 30% nominal drop since rents are probably going to be flat over the next 5 years. If they appreciate at 2%, that is still a 20% drop in nominal house prices.
Finally, US and Sweden are not the same (of course). The Swedish bust in the early 90s was during a decent (if not great) world economy. Now, the world economy is slowing dramatically. Then again, we have some advantages over Sweden I guess.
Basel Too,
I think the answer is if they let one of the $100bn+ banks fail, they wouldn't be able to contain the cascading losses, and it's all over anyways. Might as well bet the world isn't going to end, because you don't have a chance at collecting winnings if it does end.
ehp: The Obama administration, like any large organization, is not a unified entity. There are multiple motives from different people. I'm sure it's partly a negotiating tactic, and partly a PR tactic. But, there are undoubtedly people within the Obama administration who think there are problem banks that need to be taken down. The focus on Citi, undoubtedly the weakest major, is very suggestive.
If the rumors of Bair and Geithner fighting over the Citi bailout are true, then Bair in particular may be seeking to show Geithner up by taking down his biggest rescue, and after a whopper of an intervention at that. (Unconfirmed rumors say Bair thought the Citi bail was far too generous and opposed it, and the Geithner was po'd at here for "not being a team player.") The rumors are very much rumors, but certainly it's been true that Bair, for all her faults of slow action, is not willing to give up government money to save bondholders while Geithner is downright eager to do so.
A House Price:Owner Equivalent Rent of 1 would imply that people are making rational decisions given present informat
On the subject of the price to rent ratio, does anyone know if historically prices adjust to match interest rate moves on an equivalent basis -- i.e. $1000/month rent at 5% stays $1000/month rent at a 10% rate but property value changes to match.
Or is this too simplistic?
Thanks...
That's how all of them started and will continue to be managed. Inflation=bubbles in no certain terms.
Ciao
MS
\t MS
MS | 02.12.09 - 12:20 pm | #
Well, I usually think of inflation in two categories - inflation that shows up in wages, and inflation that doesn't. I don't really consider rising house prices a "bubble" if it's being driven by rising wages, because there's not likely to be a "pop". Rents are usually constrained by wages, so that's what makes me think the price increases above and beyond the rent increases are what actually accounts for the bubble part - i.e. things that go pop in the night.
The banks are in the process of being nationalized as we speak. The market is forcing nationalization. Let the markets wipe out the shareholders.
--
Economists Forecast Only Off By 8%, Annual Growth Rate, for 2008Q4 GDP
David Rosenberg, 02/12/09:
GDP now tracking -5.6% 4Q and -6.6% 1Q -- Yesterdays report takes our GDP forecasts down another several notches. Our 4Q revision tracking now stands at -5.6% QoQ annualized (was -4.4% previously and compares to -3.8% in the advance GDP report). The first quarter is now -6.6%, versus -6.3% previously.
How ironic is that? -- A year ago, the consensus forecast was that 4Q08 GDP growth was going to be the best for the year at nearly +3% at an annual rate and it now looks like it will be worse than a -5% annual rate. And the reason was because the economy is almost always reaccelerating in the fifth quarter following the first Fed rate cut. In fact, on average, real GDP growth is north of 3% in that particular the fifth quarter after the first easing. Never before has it been this negative this far into a rate-cutting cycle. Just another way of saying that this is not really a recession at all but something entirely different altogether (if you catch our drift).
I regret to say that Mr. Rosenberg, the best that America has to offer and the most pessimistic on Wall Street, was very wrong in his forecast of 2008 and 2009 GDP growth rates, made during December 2007, despite his very negative view of the economy and housing at the time. His forecast for the GDP growth rates for 2008 and 2009 was +1.4% and +2.0%, respectively. 2008 GDP is already negative and 2009 is likely to be. Pressure to be optimistic, maybe?
Americans are bred to believe in experts, a process of breeding easy dopes because most experts know that the best paying jobs are in the propaganda business. No one knows this better than economists, including economics professors. THERE IS LOT OF MONEY AND POWER IN THE BUSINESS OF BREEDING DOPES! Nothing can save America from economic disaster that has already begun because the experts are at the helm.
Jas
precious few details will emerge from what they call stress testing. In actuality we've already had several of them....it's called pricing inputs.
I was a tad disappointed (but not surprised at all) that the finance committee didn't latch on to this yesterday...instead the mantra of "hard to value" is continued to be put forth as a defense to these mechanisms.
Simply put..they have value...just not at the level they want them to be. This is academic......not enough people realize this disconnect IMO.
Ciao
MS
"and the differences between the US and Sweden will be cast in a different light."
It's already night and day if you have your eyes open.
Nostrovia,
There is no historical precedent for what has happened in recent years.
ac | 02.12.09 - 12:14 pm | #
That's mighty bold. But the paper claim to assets is wild. And we're going paperless...
\t 1 currency almost [yogi]
1 currency almost [yogi] | Homepage | 02.12.09 - 12:22 pm | #
Well a lot of folks like Warren Buffet and George Soros have expressed that sentiment too, I'm really just echoing it.
they wouldn't be able to contain the cascading losses, and it's all over anyways.
The war on cascading defaults will be Obama's war on terror.
It's not a problem until it is.
oh good jas jain has arrived to provide the daily message that Americans are dopes...
Basel Too writes:
It's purely a political play to create a sense of security for the public. If you read the NYTimes piece that CR referenced last night, the author glossed over the fact the fact that the 100 regulators were there as part of their regular regulatory activities; the imagery of all these regulators descending on Wall Street and "fanning" to the various banks did achieve the intended false sense of security.
1) no sense of security is registering on the market, where bankster stock is down.
2) political ploys usually get put on the frontpage of the newspaper. this story fell to the business section.
3) just as there is pre-privatization, this is pre-public relations. it is a step to set up future steps.
4) previously scheduled "regular regulatory activities" under the Bush Admn meant a Friday night sex party over at the Dep of the Interior. It might mean something else under this administration.
ac: agreed on your distinction between inflation and bubbles, but traditionally they co-occur because they're both driven by loose money. An unsolved question of the current bubble is how we got such a HUGE bubble, twice Sweden's by the rent ratio metric, with mild inflation. Traditional economic theory is that since inflation and bubbles co-occur, if you control inflation, bubbles will at least be restrained. That theory led the Fed very, very wrong in the past 15 years or so.
Fair Economist,
Geithner controls the FDIC and Bair, the same way the Treasury has controlled the Fed since the $1.2tn balance sheet boost.
Furthermore everything about Bair up until today has shown her to be a sycophant. No way is she side-stepping Geithner in a public display. Not a chance.
I do agree Citi will likely be the first bank tackled, but this is Geithner himself marking his territory.
There is an outside chance that he had a few handpicked people amongst the gophers asking for certain things that they would have needed a subpoena for if it was in writing. E-mails, client lists, etc. The other thing I considered was that the teams had a singular mission such as documenting off-exchange derviatives, eg: What would a Citi bankruptcy trigger
So the lesson we should draw from this paper is: get rid of mark-to-market accounting.
/sarcasm off
ac-
if you have rising wages then inflation really doesn't matter. We didn't...and won't so it mattered greatly in this last time period.
Inflation does matter no mater what but it sure would have been less of a shock had the wage end of it actually risen a bit to compensate. It is a simplistic argument however if prices rise and so does your income you have less of a problem...a problem still exists. This is where they screwed up in not keeping the whole thing going for longer.
Ciao
MS
EHP - back in the 98/99 Chinese coastal CRE/RE crash the problem was papered over with policy lending and triangular debt between tame banks, SOEs, and politically-connected enterprises, ie to local party committees. The timing was good, because the currency could hold, competitors in SEAsia were in trouble, and the dotcom bubble was on the verge of inflating, thus after two years of holding pattern, there was an excellent source of final demand, so that the Chinese NPLs didn't get called in en masse. There was also the non-trivial portion of the economy represented by outfits funded by mil and sec interests.
Massive amounts of malinvestment were covered up through this process.
It worked then. The difference this time is demand. The reflation holding pattern cannot last the distance until OECD-wide demand returns.
I suspect that this week's series of PR stunts was to juice the bond issues, but there are more and gravely serious problems that none of the bill-mongering and pressers are addressing. And the system is global. The snippets on Euro banks are pretty disturbing when you line them up with commercial credit problems in the trading chain, especially Asia.
So, this is a long way of saying I agree with ac above...(!) It's inefficient, yes. But it helps me get my case sorted.
I for one welcome our new Manic Depression Zombie overlords.
C
European space scientists were aware of the potential for a close encounter between Russian and U.S. satellites before they crashed.
But the difficulty of predicting orbits and "noise" from thousands of pieces of debris made a definitive prediction of a collision impossible.
"The 'catalogue' of objects and debris showed a possible approach between the paths of the two satellites but an approach doesn't necessarily mean a collision, and you would need more information to be certain," said Philippe Goudy, deputy director of the French space operations control centre at Toulouse.
"It is not a case of two satellites coming together out of nowhere; they had been followed. The U.S. catalogues can give an alert but these are not necessarily completely exact."
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
Alrighty then.
Economists� Forecast Only Off By 8%, Annual Growth Rate, for 2008Q4 GDP
Jas Jain | Homepage | 02.12.09 - 12:27 pm | #
I was watching the news last night and shocked to here an "official" forecast coming out of the UK for a 6% GDP decline for 2009. I didn't get the source, but that's essentially a full blown depression forecast if it was reported properly.
As Yves pointed out, the tiny number of available regulatory employees can't make a dent in this analysis. As CR has pointed out, the banks themselves have to do the heavy lifting on the analysis. The only way this works is if the regulators have a credible threat of sending the company employees to jail if they don't cooperate and tell the truth.
So far I don't see any indication that anyone is afraid of the Obama administration taking decisive steps to put criminals in jail. Not the war criminals or the bank criminals.
C,
"I for one welcome our new Manic Depression Zombie overlords."
I gotta get a flight out to one of your parties...
Nostrovia,
Remember folks, what goes around comes around. Just wait until the scientists get revenge on the bankers. Trust me, neurological and biological virus' are way better than pretending securities are triple A.
Rents are a good base metric for property values. The sustainable return on assets for a rental is affected by interest rate changes. So the price-to-rent ratio should increase as rates decline and decrease as rates increase.
At todays rates I would expect the sustainable price-to-rent ratio to be about 30% higher than it was during the period 1987 to 2001 shown on the graph. That would suggest an neutral or mean point of around 1.43 on this graph. The ratio has declined past that point implying that prices have entering overshoot territory.
Manic Depression Zombie overlords
sounds like a good name for a heavy metal band.
So far I don't see any indication that anyone is afraid of the Obama administration taking decisive steps to put criminals in jail. Not the war criminals or the bank criminals.
comrade dope albrt | 02.12.09 - 12:34 pm | #
Comrade,
when you play poker, do you tip your hand?
Everyone please ignore at least most of what I said about OER. I was thinking of another country's statistic
BLS def'n
Everything I said is effectively true, but opposite direction. OER is simply finding comparable houses on the market for rent. So the 1:1 ratio would still be rational if house prices weren't expected to increase above inflation.
sorry about running my maw like that
"The only way this works is if the regulators have a credible threat of sending the company employees to jail if they don't cooperate and tell the truth."
ll showed that this threat is quite threadbare yesterday.
Nostrovia,
Furthermore everything about Bair up until today has shown her to be a sycophant. No way is she side-stepping Geithner in a public display. Not a chance.
I haven't seen that, at all. You don't get to that level without being ambitious, cold-blooded, and at least occasionally vicious. Bair went against the Bush administration in a big way when she was pushing for mortgage mods - she doesn't just do what her "superiors" tell her. And the difference between Bair bailouts and Paulson/Geithner bailouts is striking. Every Bair bail has put a huge hit on bondholders while every Paulson/Geithner bail has saved bondholders every last cent. You wouldn't get those kinds of policy differences if Bair were just Geithner's agent.
Don't know if any of you saw this:
Japanese Stocks Slump to Three-Month Low as Profits Dwindle - Bloomberg.com
Key sentence:
The rapid slide in earnings is one reason Japans economy probably shrank at an 11.7 percent annual rate last quarter, economists estimated, the sharpest contraction since the 1974 oil crisis.
For those thinking it can't get any worse.
Ciao
MS
Last night I listed the three probable categories for the banks: 1) no assistance needed, 2) additional capital needed, and 3) Nationalization needed. I believe this should be fully disclosed and announced publicly in mid-March.
You forgot the most like choice, #4: Failure Needed.
The problems in the credit markets can all be traced to this 'mark to market accounting' thing.
Similarly, the problem with peanut poisonings is the salmonella testing. If there were no salmonella testing, there would be no poisonings.
There, I aced my hearing. Can I run the Treasury now?
So CR, how long do you think it should take them to stress-test the largest institutions?
.
.
.
(j/k!)
Fair Economist @1239
regarding sheila bair and her independent inclinations...
well said
You wouldn't get those kinds of policy differences if Bair were just Geithner's agent.
Fair Economist | Homepage | 02.12.09 - 12:39 pm | #
right, and by extension you wouldn't find Bair still at FDIC if Geithner controlled Obama.
Counterpointer,
Your the first one I saw with the term manic depression, and I latched on to it. Perfect description of the road ahead (steps shift excitation followed by overdamping)
On another matter though, do I not seem to have calmly made the right call before this week on the T-bond issues? ^_^
MS | 02.12.09 - 12:41 pm | #
umm...that is ugly
Here are urban rents and urban CPI
http://www.economagic.com/mgif/M129010506501051138011067708134.gif
right, and by extension you wouldn't find Bair still at FDIC if Geithner controlled Obama.
FDIC Chair is an independent agency position. Congress intentionally wanted to the position to be insulated from political positions, so she can only be removed with cause.
CR, if you are not bracing for a further 50-67% decline in home prices, including SoCal, you are going to be blindsided.
My arithmetic -- patterned on the debt unwind and hit to GDP over '29-'33, followed by the restart of GDP over '33-'39 -- shows that, due to the fall in income and reversion to historic norms of home price to income, home prices will fall a further 50-67%.
Abandon all hope that the moderate Swedish home price downturn is the pattern here.
It is not.
Also, it is good to have Steve Ballmer onboard the Depression bandwagon, now.
Way OT, but you gotta feed the Jas troll once and awhile:
Forgiving Dopes we are
In there own little way the FDIC has been acting exactly like the big banks and Treasury. I know the Bush admin wanted her gone (or at least to get in line with the program) however replacing the head of the FDIC would have been seen as another "oh shit" moment. Holding her up as a beacon of light sort dismisses the fact that they (FDIC) are acting in the same way Treasury is...that is to say putting 10lbs of shit in a 5lb bag. This process of folding "bad banks" with loss provisions in some cases of at or higher then 28% just doesn't work either. How different to the treasury's actions are the FDIC?
Not much....
Ciao
MS
Homer S. in space is still the funniest 22 minutes in TV history.
From MS,
"Japanese companies foresee an 83 percent decline in profit this year, according to data compiled by Shinko Research Institute Co."
That will likely hurt R&D a bit.
/hides
Nostrovia,
Anecdote.
Wife works for a private company, pay is not great and benefits are fair. Last month they had a company meeting said they were healthy with little debt and did not expect any layoffs. Their cost savings measures would be limited to no new hiring and other less drastic measures.
This morning they announced layoffs. The situation is getting worse, quick.
"I for one welcome our new Manic Depression Zombie overlords."
Comrade Misean is Dope | 02.12.09 - 12:36 pm | #
You know if you get the zombies all hopped up on crack, they're almost just like real people.
Bernanke, I hope you're reading this.
Everything I said is effectively true, but opposite direction. OER is simply finding comparable houses on the market for rent. So the 1:1 ratio would still be rational if house prices weren't expected to increase above inflation.
Actually I think rent equivalence is a reasonable floor. When house prices are dropping, it makes sense to delay purchases as long as rents are below payments + costs. You're not giving up long-term appreciation; you still get it all by buying near the bottom. When prices are going up, it makes sense to buy as long as rents + inflationary increases are above payments + costs.
The result is that prices should cycle between rent equivalence and rent+inflation equivalence in a boom-bust cycle. Indeed, that has traditionally been how it worked in CA since the 70's, until the last bubble blew through the top.
Appears to me there's a little bit of skepticism about how WFC might perform under an unrigged stress test. $22B in goodwill might do that to a bank.
I am still bewildered about how auditors and CEO can sign off on a financial statement with GOODWILL representing close to 1/2 of market cap. Where's the equity?
"This morning they announced layoffs. The situation is getting worse, quick.
The Lorax"
Remember, in todays verbage "no layoffs" means "some layoffs are coming." Just hope they don't say "no BK."
At this point fear is driving the residential real estate markets below the fundamental levels. The fear will likely continue until unemployment begins to decline. I would expect that to occur in 2010.
misean-
sort of ties up all nice and clean with what the current earnings estimations for here are still at.
But you see how they are "surprised it's so fragile"......
Ciao
MS
"I am still bewildered about how auditors and CEO can sign off on a financial statement with GOODWILL representing close to 1/2 of market cap. Where's the equity?
bearly"
In the goodwill.
jg,
"Also, it is good to have Steve Ballmer onboard the Depression bandwagon, now."
Yeah, so we can throw him under the cart when he's not looking.
MS,
"that is to say putting 10lbs of shit in a 5lb bag."
I think FFDIC posted a link about the banks eating the FDIC closures ain't too healthy either.
yogi,
HS
YouTube - The Simpsons - Space Chips
Nostrovia,
Zephyr, employment will begin growing after 2013.
Year one of the Greatest Depression is under our belt.
Only four to five more years to go.
"Zephyr writes:
At this point fear is driving the residential real estate markets below the fundamental levels."
Depends on your definition of fundamentals. Do you use pro formas?
I haven't seen that, at all. You don't get to that level without being ambitious, cold-blooded, and at least occasionally vicious. Bair went against the Bush administration in a big way when she was pushing for mortgage mods - she doesn't just do what her "superiors" tell her. And the difference between Bair bailouts and Paulson/Geithner bailouts is striking. Every Bair bail has put a huge hit on bondholders while every Paulson/Geithner bail has saved bondholders every last cent. You wouldn't get those kinds of policy differences if Bair were just Geithner's agent.
Fair Economist | Homepage | 02.12.09 - 12:39 pm | #
Mortgage mods -- Have you read that plan, do you forget where it was first floated from? That's right, it was Paulson at the Treasury. Bair was carrying Paulson's water, far from the individualistic act you propose. The key part was maintaining the full principal value, and then guaranteeing 50% (??) of any losses. That way the banks could be recapitalized in part and cleaned up without facing the public gauntlet. The plan came out first, and then she was the one of all organizations to carry it (the FDIC insures deposits, examines banks. The assets it does end up with get sold asap)
Do you remember the 180° turn on Wachovia? How many strings had to be pulled to get Bob Steele a better offer, not the least of which was a one time only selective rewrite of an IRS statute? Who was that that ex-post cancelled the deal with Citi for which there is an ongoing lawsuit
Every Bair bail has had a hit for bondholders?! She's the freaking FDIC, doesn't have the pocketbook of the Fed. You have no idea how generous any understimated loss sharing provisions are, and the subsidy passed along to bondholders.
I didn't say Bair was Geithner's agent, she's independent to an extent within her operating boundaries. Bair is a lapdog, and one dog whistle away from licking Geithner's feet
Yeah, so we can throw him under the cart when he's not looking.
Comrade Misean is Dope | 02.12.09 - 12:53 pm | #
Dude, Ballmer won't FIT under the cart!
Thank you for an outstanding analysis, CR. I have been pondering the same issues, and this helps immensely.
Here in Santa Cruz, Ca the price/rent ratio is way out of whack still. Just looking at listings, I'd guess we're 20%-30% away from parity right now and that's with distressed sellers clogging the market.
Basel Too
from the FDIC website, FDIC: Who is the FDIC?
"The FDIC is managed by a five-person Board of Directors, all of whom are appointed by the President and confirmed by the Senate, with no more than three being from the same political party."
ditto for the SEC, and where is Christopher Cox and why did he not fill out the entirety of his 5 year term?
Current SEC Commissioners
"The Securities and Exchange Commission has five Commissioners who are appointed by the President of the United States with the advice and consent of the Senate. Their terms last five years and are staggered so that one Commissioner's term ends on June 5 of each year. To ensure that the Commission remains non-partisan, no more than three Commissioners may belong to the same political party. The President also designates one of the Commissioners as Chairman, the SEC's top executive."
The President calls the shots. He asks people to resign when he does not want them.
Actually I think rent equivalence is a reasonable floor. When house prices are dropping, it makes sense to delay purchases as long as rents are below payments + costs. You're not giving up long-term appreciation; you still get it all by buying near the bottom. When prices are going up, it makes sense to buy as long as rents + inflationary increases are above payments + costs.
I think there is one peice missing from that. The money that is spent on rent is essentially thrown away so the break even point has to factor that in. Spend $20k on rent in a year and you can "afford" that amount of loss on the home. Well, that plus the income tax savings. Ya, costs have to be factored in as well.
This morning they announced layoffs. The situation is getting worse, quick.
The Lorax | 02.12.09 - 12:49 pm
I worked for one of the first online content providers and services. They said the samething. Then we had layoffs. They said all was ok now. We just had to tighten our belts.
They had Friday cook-outs to improve morale and show that we were all in this together. Meanwhile the CEO was negoiting the sale of the company to a competitor.
The sale went through. All but 3 were let go.
M-, I presume that you, as an IT guy, are no fan of MSFT, eh?
MS,
...fragile...
I said /hides....
Nostrovia,
comrade jg referenced a statement by steve ballmer (of microsoft fame)
quite sobering
heres the link and 4 choice para
Ballmer likens economy to depressions of 1837, 1873, and 1929 | Politics and Law - CNET News
Ballmer said that economic growth in the last 25 years was fueled by innovation, globalization, and debt--and that the current levels of debt were unsustainable. "In 1929, for example, just before the stock market crash, the private debt-to-GDP ratio was 160 percent," he said. "Last year, private sector debt as a percentage of the GDP: 300 percent, far more leverage."
Steve Ballmer
Microsoft CEO Steve Ballmer: "This is a once-in-a-lifetime economic crisis."
(Credit: Microsoft)
His warning of a protracted downturn that could become a depression comes amid a stock market that is down by more than 40 percent from its October 2007 peak, and housing prices in many metro areas that have been falling consistently since July 2006--a feat not equalled since the Great Depression.
"In my view, what we now have will be a fundamental economic reset," he said. "The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate."
EHP - I forget your pick on the bond issues. I was picking disaster, but may be too early for that. There is a rather Broward point in the yield curve, ie kinky, still at the 1-year mark, and 10 and 30 are still chasing yields higher. But I suspect today's issue will be fine, given the news out of China overnight.
That is, goddamn the pusherman, but you're the only one with the sh!t I need.
C
Lorax,
Same thing happened in my company... last month all was ok. Monday was layoffs and pay cuts.
""In my view, what we now have will be a fundamental economic reset," he said. "The economy is going to have to re-establish itself at a level of spending that reflects the real value of underlying assets before we can all start growing again at a healthy rate."
mock turtle"
Did he really say that or did he just repeat it after reading it here?
--
"Way OT, but you gotta feed the Jas troll once and awhile"
DOW36000,
I get daily conformations, including on this blog, that Americans are irremediable dopes. I understand the power of the Great American Propaganda Machine. Most Americans, including most here, delude themselves by believing that they are not dopes. Dopes in denial! That is America of today, folks. Let us see how badly this all ends.
If CR were smart he would have limited himself to economic reporting and not to forecasting! But even the best in America succumb into dopey behavior once in a while.
Jas
jg,
I love M$, what would make you think I didn't?
"employment will begin growing after 2013."
You, perhaps, saw my prophetic bottom post from last PM?
http://www.johnnyburrito.com/images/dinero/1_may_14_2003.jpg
Nostrovia,
YouTube - Judas Priest- Some Heads are Gonna Roll -Montreal Canada 84
Yes!
Also, why the heck would it have been Bair secretly sending out new examiners to banks without Geithner's knowledge?
The only real thing he committed to in his 'plan' speech was to audit the $100bn+ banks within 30 days. Are you really suggesting Bair was the mastermind?
EHP did he say "within 30 days"?
ova,
/lighter in air
Nostrovia,
<i>Zephyr(Unrated) writes:
At this point fear is driving the residential real estate markets below the fundamental levels. The fear will likely continue until unemployment begins to decline. I would expect that to occur in 2010.</i>
------------------------------------------------------------------------------
Bwahahaha. Still in phase 1 Denial? You mean we don't still have a massive bubble in asset prices? You mean to tell me that prices relative to incomes are approaching historical levels? You think that speculators have already been driven from the RRE market? You think that rents will be stable as unemployment rises to levels not seen since the depression. You think that people with negative savings will suddenly be able to put down 20% to buy real estate? You think that the decline of equity prices won't spill over into the real estate market?
Excuse me, but fundamental levels are way lower, and that is before you consider that we are just entering a deep recession &/or depression.
We are going to see another 20-25% off prices at a minimum.
I thought all IT guys regarded MS products as 'bloatware,' released before all the bugs are out.
I arrived at my 2013 through arithmetic and logic and history, any of which could be incorrect or inapplicable.
But, I am happy with my bets (short SPY and SSO, long UNWPX, GDX, and SLW, and rent a home).
Must keep S&P above 820.. and Gold below 950....ugh!
"We are going to see another 20-25% off prices at a minimum.
Gavshire Hathaway"
GH, Be careful. Zephyr doesn't want to know the truth. The truth could crush him.
joe shmoe:
you cited two passages relating to the appointment of the chairs; kind of irrelevant for the point that I was trying to make. Please go find and cite the statutory provisions for removal.
Comrade Misean is Dope
Listening to them still makes me want to get drunk and hit someone.
Yep, A-, those DO seem to be the critical protected levels, eh?
Charter communications BK
It would be great to see the Swedish graph extended out another 10 years or so (and in real terms as well).
It's not just a question of how far the prices fell, but how long they stayed flat.
Ouch, Charter used to be my cable company in St. Louis...
the point that no one has mentioned regarding stress testing the $100bn banks is that the testing had to be done anyways for compliance with the Basel II Accords.
Not that radical of a departure, or necessarily setting the table for pre-privatization.
"Charter communications BK
Anonymous"
If the would have changed their name to "Bad Communications," it is quite likely they still would be solved. It is all in a name these days.
jg,
Did I NEED a "/sarcasm on" line in the code? That's what I get for linking someone elses library...
Nostrovia,
Anonymous writes:
Charter communications BK
Anonymous | 02.12.09 - 1:06 pm | #
Another Paul "I milked MS" Allen venture goes bust...
@ mock turtle
You have to look at Ballmer's motivation, too. The Wintel empire is doing a Last Man Standing play. They are calling extreme doom in the hopes that it will hit their competition, such as it is, hardest. They are also lowering expectations pre-emptively, in hopes of cushioning damage to the stock price in coming quarters. They also intimidate their own employees, this way, pre-empting salary increases and giving an excuse to cut out the deadwood via draconian layoffs. Ballmer is playing several sophisticated games at once, while looking like a PR hero for being "frank and outspoken."
"Crush all who oppose us, by any means necessary, including psychological warfare"-- that's the way they've played for 25 years. That's why some people resist becoming "microserfs." That's why Bill appears as a Borg on slashdot.
The propaganda machine will be caught off guard when the paychecks stop coming....then we'll have more of a classic, hard-line propaganda system directly from the government...not the private corporate kind.
Here we go:
"LA Supes Sue State"
Error: 404 Page Not Found
Nostrovia,
If I remember rightly, the swedish govt have more than a small hand in dictating the prices for which property can be bought and sold for...
this is second hand info from a few years ago though...
This is a good reason why prices only fell a certain amount and then appeared to flatline.
Counterpointer,
I forecasted no big whoops this week. Too early. Yields would still be very low historically, China wouldn't stop buying, etc.
You are right, just too early. Will come closer to when trade balances force currency realignment, financial flows alone are not self-sustaining. My Almanac is forecasting a long hot summer
W00T
There are a lot of other costs, and it's fine to estimate them to be an even break in estimation. You get the tax break in America on mortgage payments, but as you can see it didn't skew much during the early 1990s. There's maintenance, taxes, and other costs covered by rent. The main differentiator is expectation of appreciation, which forms the bubbles Fair Economist wrote about. They're bubbles because you can never make the world infinitely wealthy through pure will power.
A 23-25% drop from here is not out of the question, especially if you consider rent prices are also dropping. Prices won't rise until it is cheaper to buy than rent because there is so much inventory out there. Shifting inventory to rentals will expedite the price decline, and despite bank hopes for a mortgage mod lottery or current foreclosure terminal velocity, they cannot hold them forever.
Charter communications BK,
CRAP! Well that explains one of my node problems.
Nostrovia,
SFO launches probe into UK unit of AIG
Britain getting "Serious".
"Ballmer is playing several sophisticated games at once, while looking like a PR hero for being "frank and outspoken."
Or he could just being saying what he thinks (or read here).
We are currently having a national discussion over what NOS to migrate to.
Its MS Server 2008 v. *nix.
I am not even bothering. management will go MS because MS means cheap, plentiful labor.
Basel
yes, the statute says cause is needed to dismiss the chair of FDIC and SEC. no argument there.
my point is
1) that they can be asked to resign.
2) SEC Chair Cox is gone, left before his term ran out. He was not dismissed for cause. He resigned.
3) If Obama had not wanted Bair, she would be gone by now, too. But she is still there and she is a player in the decision process.
4) Appointed by the President means, effectively, within in certain circumstantial limits, at the pleasure of the President. That is why Cox is gone and Bair is still there.
5) The circumstantial limits were tested by Nixon (the Saturday Night Massacre) and by Bush (the DOJ case).
The wall street banks will not allow themselves to become transparent and with crooks inside or near The White House, TARP will continue on, without accountability and America will follow Japan in wasting 15 years on saving face for the elite.
30 Year Auction results (link below)...PDF alert
Gotta run out the door right now...back in about 45 minutes.
On the surface it appears it was not so successful. Many tenders at low end but not filled.
http://www.treasurydirect.gov/instit/annceresult/press/preanre/2009/R_20090212_1.pdf
Any opinion Evil?
Ciao
MS
"The wall street banks will not allow themselves to become transparent"
So they would rather be zombies than ghosts? I like Casper. Really, what is not to like? Be like Casper.
ova,
vs. expensive smoking hardware.
I'm still one step ahead in the NOS side.
Samba4 better get moving though...
Nostrovia,
Basel Too,
Thanks for bringing up Bair's independent term appointment. As long as Bair and Bernanke can do their jobs technically, and especially if they take marching orders, there is no reason to go through the hassle (and public cost) of removing them. I mean if I were in their position and I couldn't do my job with outside ressources and help to begin with, you bet your bottom dollar I would happily accept the help and abrogate my responsibility up the chain of command if I think the war is already lost.
"We are currently having a national discussion over what NOS to migrate to.
Its MS Server 2008 v. *nix.
I am not even bothering. management will go MS because MS means cheap, plentiful labor."
I will say that although *nix administrators are harder to find and more expensive.. you also only need about 10% of the admin staff in a *nix environment that you need in a windows environment
I also will say that windows on the server side is pretty much crap... but I do like XP (not vista though)
CRAP! Well that explains one of my node problems.
Nostrovia,
Comrade Misean is Dope
Ah, last week I commented that anybody on Charter might think of finding another..
EHP: For sure. I wasnt arguing for the "time to buy" crowd. Just stating that there were plenty of other things to factor in. Where I live, price/rent is still so far out of whack, money spent in rent is a fairly insignificant portion of a 5% drop let alone a 20+% drop.
Have you read that plan, do you forget where it was first floated from? That's right, it was Paulson at the Treasury. Bair was carrying Paulson's water, far from the individualistic act you propose.
Paulson's and Bair's plans were very different. Paulson's plan was a Potemkin village - the mods required voluntary cooperation from the bank, and assorted conditions that made it a no-go. Bair has pushed to force mods on bailed banks.
Do you remember the 180 ° turn on Wachovia? How many strings had to be pulled to get Bob Steele a better offer, not the least of which was a one time only selective rewrite of an IRS statute? Who was that that ex-post cancelled the deal with Citi for which there is an ongoing lawsuit
Bair and Paulson fought for a week over that. She certainly wasn't his agent there. Paulson won that one, probably because the Wells Fargo deal cost the taxpayer less in the short run.
Every Bair bail has had a hit for bondholders?! She's the freaking FDIC, doesn't have the pocketbook of the Fed. You have no idea how generous any understimated loss sharing provisions are, and the subsidy passed along to bondholders.
Sure, Bair's motive seems to be primarily preserving the FDIC fund. Nonetheless, that is her motive, and it differs from Geithner's. I haven't seen any of her big bails result in excessively generous bondholder compensation - and how do you square that with the way she raped the WAMU bondholders? Do you think Paulson and Geithner were happy that she probably about tripled the WAMU CDS event to save the uninsured depositors? And made it basically impossible for banks to issue bonds while she was at it?
ova - in that case put it on iPod and go to Wall St to hang out for a while. At this rate you'll be joined by several thousand if you put the word out on CR, Mish and Yves...
From that great philosphe Bob Mould:
C
The problem is that you can't have transparency when you take the "nationalization" option off the table. Our banking system is a house of cards.
Crude is down to, what, $35/bbl? And my local gas went up in price $.05 (yet again) today.
Which begs the question:
Who's hand is in the till now?
No, it does not beg the question who's hand is in the till now.
It begs the question whose hand is in the till now.
Ugh.
you bet your bottom dollar I would happily accept the help and abrogate my responsibility up the chain of command if I think the war is already lost.
Just another meaning of socializing the losses. At this point, nobody wants to be a bagholder. Reminds me, where the hell is Chris Dodd in this mess? He has oversight over the sector, and last I heard, he was modifying some of his mortgages.
We are going to see another 20-25% off prices at a minimum.
I live a suburb of NYC (NNJ). One of the few with direct service to Manhattan. Prices were really sticky throughout 2007 and the 1st half of 2008. Then the slide started.
Over the last two months the market cracked. Huge price declines and literally NO sales. I'd say we are 33% off the peak and it looks like 50% off is just around the corner.
Connecticut is even worse.
Crude is down to, what, $35/bbl? And my local gas went up in price $.05 (yet again) today.
Which begs the question:
Who's hand is in the till now?
Outsider
.
I'm glad someone else noticed this. Gas over $2.00 per gallon here, up from a low of about $1.50, IIRC. Maybe they're hoarding cash against a further fall in oil.
begs the question
By the way, that's a logical fallacy. What you really mean is "raises the question".
Outsider writes:
Crude is down to, what, $35/bbl? And my local gas went up in price $.05 (yet again) today.
Which begs the question:
Who's hand is in the till now?
Futures affect prices in the.... wait for it...
future
I'm on the Ballmer was just speaking frankly boat. Someone can still be a jerk or headcase without their every word going towards justifying that perception.
Honestly if a company like Redhat plays its hands right, it is better suited than Microsoft to a lean and flexible business model that thrives in this environment. As for scaring employees, Microsoft and their competitors for workers have all already been laying off not only contractors, but significant employees. They don't need to drop the daily newspaper on the table at negotiations, it's already been in the corporate newsletter
" Just stating that there were plenty of other things to factor in."
While I don't disagree with you technically, I believe people (non-flippers) make decisions to buy a house like this:
Right now the answer to #1 should be no, so people shouldn't even get to #2. If they did get to #2, however, the vast majority will no get financed or have down payment.
Flippers don't think, so they don't encounter this process.
Ooh, that's important, a weaker than expected 30 year Treasury auction.
Thanks, MS!
zeroira writes:
oh good jas jain has arrived to provide the daily message that Americans are dopes...
zeroira | 02.12.09 - 12:29 pm | #
And . . . ?
Counterpointer writes:
nova - in that case put it on iPod and go to Wall St to hang out for ...
Sorry C, I don't understand.
Also, why the heck would it have been Bair secretly sending out new examiners to banks without Geithner's knowledge?
The only real thing he committed to in his 'plan' speech was to audit the $100bn+ banks within 30 days. Are you really suggesting Bair was the mastermind?
As you recall, the plan was a compromise between Geithner and other agents within the Obama administration, particularly Axelrod. Geithner's not the only player in that plan. The agents aren't being sent out without his knowledge. However, there are probably factions within the administration that really want to know what's going on at Citi, and others that hope to use a bad situation at Citi to embarass Geithner. Maybe Geithner was forced to accept an audit of Citi, or maybe he was forced to accept an audit controlled by somebody else. He doesn't have sole control.
Bair is a reasonable candidate for somebody who would want to force an audit on Citi. She's going to know things are shaky there, and she may have personal motives to embarass Geithner. Plus if it can't be saved, it goes in her lap, and she will need to be ready for that one.
"We are going to see another 20-25% off prices at a minimum.
Sure. That could happen. But I believe it is all overshoot at this point. This decline is a nasty one and I expect a strong overshoot. Another 20-25% would be great! I would love to buy at those levels, if I could be so lucky as to have prices fall that far.
Oooh, a CR-style headline (i.e., admits things are bad, but not quite THAT bad):
Great Recession seen lasting 3 years, experts say
| Reuters
The mainstream is slowly boarding the Greater Depression bandwagon.
GH, Be careful. Zephyr doesn't want to know the truth. The truth could crush him.
Very funny! However, with most of my money in cash (since 2007), and my real estate nearly debt-free, I can not be crushed by falling prices. In fact, the lower they go the better off I will be. I only buy in the recovery phase of the cycle. And I sell late in the bubble phase. I have been waiting since 2003 for the next buying opportunity. I can wait longer.
"I would love to buy at those levels, if I could be so lucky as to have prices fall that far.
Zephyr"
It is not luck when it has already been determined.
Fair Economist,
Well it's been narrowed down to a difference of opinion, save for the idea that it was Bair who chose to send in the new examiners publicly. I'll leave it at that
Barley,
RE: Charter...
Yes, missed that. But I just discovered how in bed they are with Cox in NV, which is the provider I use there.
Nostrovia,
Heads they win, tails you gonna lose :
Lawmakers' Goal to Cap Executive Pay Meets Resistance
Lawmakers' Goal to Cap Executive Pay Meets Resistance - washingtonpost.com
Provisions to impose a penalty on banks that paid hefty bonuses and to cap pay at $400,000 for all employees at firms applying for additional government funds did not survive the compromise, sources said.
"But I just discovered how in bed they are with Cox in NV, which is the provider I use there."
OK, I'll bite. How in bed are they?
The crude price that is getting hammered is likely Cushing delivery...it is a land locked delivery point where the current supply of storage is just about stuffed to the rafters. Fair amount of b!tching globally about this being rather unrepresentative of the global crude market...
Plus refining capacity utilization rates are going down as profitability got hammered, so refiners are reducing capacity and doing turnarounds or other maintenance activities. Refining is a game of scale, so as volumes are reduced unit costs will go up.
Expect more of this with retail goods after the wave of BK's - buy big when the real fire sales occur - afterwards, capacity reductions may well result in price increases.
Comrade Misean is Dope writes:
Here we go: "LA Supes Sue State"
They are a few days late to the party, several other counties are also suing. Of course LA with 10 million people and massive budget is most significant.
Constitutionally, all local governments exist at the whim of the State - but I bet Caulifornia has legal obligations that create causes of action for the counties and municipalities.
There are rumors of yet another State budget deal, but I won't believe it until I see a freak-out at Flashreport.org
Refinery utilization stats from EIA:
Natural Gas and Petroleum Navigator Error Page
-Angry workers leak French Q4 GDP, say down 1.2 pct
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
LMAO
"Expect more of this with retail goods after the wave of BK's - buy big when the real fire sales occur - afterwards, capacity reductions may well result in price increases.
citizen energyecon"
You have just made Rich's argument for buying commodity ETFs now.
So I've mentioned many times that I'm massively short GS via options, because I believe that if their level 2 and 3 assets were marked to market it would be obvious that they are massively insolvent like just about every other financial institution. In fact, given the smoking crater that was Lehman, I don't think it would even be close.
But now that they're talking about going in and stress testing these banks, I'm getting a little nervous. Assuming that the process is fair and accurate, we will soon see if the emperor is wearing clothes.
Could GS really be solvent, as Blankfein insinuates??
Even if they are insolvent, what are the odds that the stress test will be honest and reveal it?
Is the Obama administration, Geithner et. all taking the first step to sell the public on nationalization? Roubini certainly feels that there is no other option. Could they really be doing the right thing??
Setting The Record Straight On The Economic Recovery Package
by Rep Louise Slaughter
Daily Kos: Setting The Record Straight On The Economic Recovery Package
President Obama even met with House Republicans more times in two weeks to discuss this legislation than President Bush did with House Democrats in two terms.
The Republicans were certainly allowed in the process, but they wanted to obstruct.
Here is on of Ben Stein's investments:
COHEN & STEERS QUAL Share Price Chart | RQI - Yahoo! Finance
This claptrap was vetted by one of Ben's genius friends (Phi DeMuth I believe.)
Check out the current yield - 44%!
Comrade-Dope jg (jg) | 02.12.09 - 1:29 pm | #
Best. Quote. Ever.
"There is an inexhaustible supply of bad management out there."
Ok, so what's the official party line on deleting from the stimulus plan the requirement that contractors not be permitted to hire illegal aliens? That this is an archaic "mental construct"? That we're talking about "jobs Americans won't do"? And has it finally sunk in on Club Progresso that the stimulus bill contains provisions designed to insure that university profs will not be able to obtain better medical care than gangbangers?
I will attempt to predict the analysis that will be found by these stress tests of the major players:
Uh,.... Citigroup, BAC, and GS are well capitalized. Things are contained. Move along, nothing to see here.
I regret to say that Mr. Rosenberg, the best that America has to offer and the most pessimistic on Wall Street, was very wrong in his forecast of 2008 and 2009 GDP growth rates, made during December 2007
Just as no serious trader listens to analysts, no serious forecaster should listen to Wall Street economists.
Market is usually closer to truth, and market is saying this depression will shave off 15% off GDP.
Do you think Paulson and Geithner were happy that she probably about tripled the WAMU CDS event to save the uninsured depositors? And made it basically impossible for banks to issue bonds while she was at it?
\t Fair Economist | \t \t \tHomepage | \t02.12.09 - 1:19 pm | #
Do depositor claims usually come before bondholders? Either way, hitting uninsured WAMU depositors would've caused a big panic event, I think.
FE
That last post was written prior to your 2nd reply, if it matters
The 30 year auction went off fine. There was substantial coverage and plenty of indirect bidders.
Elvis | 02.12.09 - 1:34 pm | #
I find his argument most persuasive around DBA...
The Republicans were certainly allowed in the process, but they wanted to obstruct.
And rightly so.
"Even if they are insolvent, what are the odds that the stress test will be honest and reveal it?"
ZERO
Gavshire Hathaway writes:
So I've mentioned many times that I'm massively short GS via options, because I believe that if their level 2 and 3 assets
Not to put a finer point but GS is the Fed's darling. They will pass any stress test. You are probably right but that ship will never sink.
The "AAA" credit ratings of both the United States and Britain are "being tested" by the strains in the global economy, while countries like Germany, France and Canada are proving more resistant, Moody's Investors Service said on Thursday
Really.. that's the exact opposite of what I just read in the financial times. According to them, Moody's is making three tiers of AAA sovereign debt ratings, those that are likely to stay, those that will be challenged, and those which are on downgrade watch. The United States, Germany, France, and Canada were all in the top tier.
Ok, so what's the official party line on deleting from the stimulus plan the requirement that contractors not be permitted to hire illegal aliens?
Nil | 02.12.09 - 1:36 pm | #
Probably since it's already illegal? Why reiterate that contractors not be allowed to break the law?
2) SEC Chair Cox is gone, left before his term ran out. He was not dismissed for cause. He resigned.
3) If Obama had not wanted Bair, she would be gone by now, too. But she is still there and she is a player in the decision process.
Cox headed the SEC during some truly extreme regulatory malfeasance, malfeasance that's already on the front pages and in Congressional hearings. He has a big gun pointed at his head, labeled "public humiliation and criminal procedings". Bair faces no such problems.
I can't think of any time a new Pres forced out an independent appointee. It just doesn't happen. If he did try, Bair could humiliate him politically precisely on the grounds of putting political pressure on an independent employee. The Republicans would LOVE that and would run with it successfully for years.
Cox vs. Bair is just the way things work. Independent appointees caught up in massive scandals resign. Independent appointees under new Presidents keep their jobs. That's the way it's supposed to work, and that's the way it does work.
The 30 year auction went off fine. There was substantial coverage and plenty of indirect bidders.
Anonymous
Yup but a, heh, how many shops covered? Let see now we need to find more 'cause BS, and LEH went away...
And rightly so.
Anonymous | 02.12.09 - 1:38 pm | #
Brilliant vacuous analysis !
"You are probably right but that ship will never sink.
Barley"
Until it sinks, we won't hit bottom.
"There is an inexhaustible supply of bad management out there."
What else would you expect in a system backstopped by a central bank with an "infinite" balance sheet?
It's damn near impossible for most to protect themselves from the stupidity. The best you can do is to be a part of the sham.
sigh
As for scaring employees, Microsoft and their competitors for workers have all already been laying off not only contractors, but significant employees. They don't need to drop the daily newspaper on the table at negotiations, it's already been in the corporate newsletter
EvilHenryPaulson
.
Evil, that's not exactly what's going on inside the machine. There are still job reqs going out, still bonuses being paid, rather quietly. Along with layoffs. The internal politics is much more complex than it appears from the outside.
Hint. Ultimately, Microsoft needs Intel. But Intel could very well develop its own software platform, if it so chose. It was an arranged marriage, and there is a lot of mutual hatred there.
As for the small fry, like Redhat, I don't know anyone with enough financial stamina to survive a "nuclear blast" downturn. IMO they will be eaten. We shall see.
Elvis - 'prolly right!
""You are probably right but that ship will never sink.
Barley"
Until it sinks, we won't hit bottom.
Elvis"
I say sink the bastard today, so we can get on with things.
Brilliant vacuous analysis !
Thank you Barney!
ova - put the headbanger song on iPod, go to Wall St and do what you said you felt like doing.
And tell serf Alan Greenspend to stand by with a camera.
Sounds like justice to me.
C
Ben Stein's investments
The tide is receding, and all the self-proclaimed geniuses of the past 10 years are being revealed as the morons they really are. Ben Stein is a joke and not even funny.
Could there be several "stress tests" over the next 2 years? After each Stress Test, we could preprivatize couple of banks.
A hybrid-Sweden model.
Thank you Barney!
Anonymous | 02.12.09 - 1:42 pm | #
Are you a Log Cabin Republican ?
"this sucker's goin' down"
I wonder... Should I just change all my future 401 k contributions to the money market option for the time being?
sigh... it's not like I'm going to hire a financial advisor.. and most of them would probably just tell me to stick it out
Elvis(Unrated) writes:
\t"You are probably right but that ship will never sink.
Barley"
Until it sinks, we won't hit bottom.
------------------------------------------------------------------------------------
That's what they said about the Titanic. I guess this is going to be my Taleb investment position. Given the political support for GS it is unlikely, but the potential payoff is huge. IMO, they're going to need a lot more handouts to weather this storm, and those giveaways are starting to be untenable.
CNBC as bearish today as I can remember
This really isn't news, but home prices fall by record amount:
Home price declines deepen - Feb. 12, 2009
Financial innovation = Financial CONfidence scam.
They had Friday cook-outs to improve morale and show that we were all in this together. Meanwhile the CEO was negoiting the sale of the company to a competitor.
nova | Homepage | 02.12.09 - 12:54 pm | #
Happened to me back on 2000. Workd for a sweet old-school local Seattle company that got bought by Clear Channel. The lies and layoffs were ruthless. Now I work in academia, and the ivory tower types think it can't happen here. Ha!
km4 writes:
Thank you Barney!
Anonymous | 02.12.09 - 1:42 pm | #
Are you a Log Cabin Republican ?
Or
are you really Idaho Sen. Larry "Wide Stance" Craig ?
The govt is selling nationalization. They will make us beg for it. Then they will do it under protest, so we can't complain when our pensions/401ks/mutual funds become worthless.
Thank you. May I have another?
Do depositor claims usually come before bondholders? Either way, hitting uninsured WAMU depositors would've caused a big panic event, I think.
ille_vir | 02.12.09 - 1:37 pm | #
Insured depositor are ahead of bondholders, uninsured depositors are (supposed to be) with them. I agree that hitting the uninsured depositors risked a panic (IndyMac was a mess) and Bair wanted to avoid that. Bondholders can't run; they're stuck. So her WAMU policy, while extremely unfair, benefitted the FDIC, which is why I think Bair did it.
EvilHenryPaulson writes:
FE
That last post was written prior to your 2nd reply, if it matters
It doesn't. Neither of us has bugs in the Obama administration war room so we'll just have to agree to disagree for now.
New Thread: NY AG Cuomo Letter to Barney Frank on Merrill Bonuses ( 1 comments )
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Always wanted to do this...
Background music:
YouTube -
Elvis | 02.12.09 - 1:45 pm | #
Hey on that Elvis linky go take the "Quick Vote" on Geithner plan to spur lending...
"I wonder... Should I just change all my future 401 k contributions to the money market option for the time being?"
What's this "401K" you speak of?
Gavshire Hathaway,
They were early to bet against the housing bubble, but they only made the bet to a limited extent because prior to the summer 2007 (?) strategy meeting, they were massively long on it. By far the biggest issuer of securitizations relative to its capital (BBerg used to run a monthly leaderboard), and the common practice was to sample your own product. Since things have gone south, their securitized products have done notably worse than average.
As things fell below whatever they hedged to, their Level 3 assets have grown to disturbing proportions.
At best, they're as strong as Morgan Stanley.
They've managed to keep deals flowing despite the decline of PE and IPOs. But their commodity business has been neutralized ever since IB consolidation such as when JPM took over Bear Sterns and now controls around 75% of COMEX orders
They outperformed on the run up because of housing, and later oil. Now that they can't snowball anything, expect the losses to show up eventually
It is risky betting against the government however
One thing complicating this whole problem is the geopolitics of screwing over foreign bondholders of these banks.
Max | Homepage | 02.12.09 - 12:18 pm | #
That's why I wonder if the FBI investigations are a way to divert anger. "Not my fault, we have to prosecute criminals". And if the process of prosecution brings down the whole shebang......whoops.
Zephyr writes:
... In fact, the lower they go the better off I will be. I only buy in the recovery phase of the cycle. And I sell late in the bubble phase. I have been waiting since 2003 for the next buying opportunity. I can wait longer.
Proof positive that the speculative fever in housing is alive and well....
scone,
Intel doesn't need to write an OS, Linux, Sun, *BSD (MAC), all run quite acceptably on it's processors.
Nostrovia,
Actually I'm reading some bad shiite in the 30-year auction. For success and confidence there should be fewer holes in those numbers.
EHP - milestone passed. Acceleration to come.
C
PS thanks MS for the link.
Insured depositor are ahead of bondholders, uninsured depositors are (supposed to be) with them. I agree that hitting the uninsured depositors risked a panic (IndyMac was a mess) and Bair wanted to avoid that. Bondholders can't run; they're stuck. So her WAMU policy, while extremely unfair, benefitted the FDIC, which is why I think Bair did it.
Fair Economist | Homepage | 02.12.09 - 1:47 pm | #
I see. Thanks for the explanation. Trying to learn this stuff as I go...
Thanks EHP -- really appreciate the insight!!!
Happened to me back on 2000. Workd for a sweet old-school local Seattle company that got bought by Clear Channel. The lies and layoffs were ruthless. Now I work in academia, and the ivory tower types think it can't happen here. Ha!
Joanna | Homepage | 02.12.09 - 1:46 pm | #
Yeah, me too. Did the tech stuff in 1998-2002 boom and bust, now at a state university and I'm outwardly cheerful about the situation and inwardly planning for a year without significant pay.
scone,
Intel doesn't need to write an OS, Linux, Sun, *BSD (MAC), all run quite acceptably on it's processors.
Nostrovia,
Comrade Misean is Dope
.
Yes, I know that. That's part of my point. But they have to optimize anything they use, and they might as well eat the small fry if they're going ultra-cheap.
Counterpointer | 02.12.09 - 1:43 pm
Sorry, being dense.
In response to a few questions from above:
Swedish inflation was high during the bubble (10%) and fell during the bust (2%)
The Swedish Krona devalued sharply when the bubble burst from 5 SEK/USD to 8 SEK/USD. Beggar thy neighbor?
The mortgage rate does influence the value of a house. But, so does the rental growth rate. The higher the spread between these two values the lower the ratio of price to rent should be. During the bubble this spread was much smaller (5% mortgage, 2% rental growth, 3% spread) than it is now (5% mortgage, 0% rental growth?, 5% spread). If you value a structure as the PV of future rental streams this becomes pretty clear.
I personally think rents are falling around 5-10% in urban areas right now, so the Price/Rent ratio should go well below 1.
Gold just poked over 950 again. That's significant for gold bugs.
That's significant for gold bugs.
Speed | 02.12.09 - 1:57 pm | #
I'm no gold bug, but I do check it as an indicator.
Some speculate that 950 is a breakaway point - that GS and others are waiting to see whether or not to hold their puts or sell them and buy long.
Loves to rattle the Jas cage.
If you read between the lines for the linked story, it is pretty much saying
"Dopes, don't worry, be happy"
I just thought you'd like it
Counterpointer writes:
Actually I'm reading some bad shiite in the 30-year auction. For success and confidence there should be fewer holes in those numbers.
After initial knee jerk sell off, 30yr is rallying again. There will not be inflation until credit creation begins anew (try 5 years).
bernstein at ML: if you are negative on the financials, like I am and the consensus here...there's no way you can be worried about inflation now - it's DEFLATION everywhere. 3 years from now? maybe
"Proof positive that the speculative fever in housing is alive and well...."
No fever here, Blueridge. Just a hard-nosed opportunist, patiently waiting for the right time.
If I've understood this thread, and I think I have, what this economy needs is an inanimate carbon rod.
CR,
All of these great proposals to get them bad guys and nationalize, etc.
Have you and your compadres given any thought to the amount payable in case of such event on Credit Default Swap contracts?
And if so, will Feds subsequently have to nationalize all other parties that would lose billions on such contracts and subsequently, all parties doing business with them?
Or, are you (like most others) simply warming the air just for the fun of it?
1.3 is still much too high. It needs to be at 1, +/- 0.1. These figures are also way off for various regions, such as California.
Comrade-Dope jg (jg) writes:
CR, if you are not bracing for a further 50-67% decline in home prices, including SoCal, you are going to be blindsided.
That means either mass mortgage default, or a Balarney Frank sponsored, FRE/FNM nationalization of all mortgages.
Nationalize the banks, nationalize the mortgages.
something about accepting less then was tendered has me believing that even the "plenty of indirect bidders" are trying to force yields up.
It appears that it went ok...however alot of the tendered bids weren't what the Treasury would like to be sending out the door yield-wise. Hence the need for these indirect bids to lower the issued return that ultimately goes out the door.
In any case I wouldn't be rushing to put my money in 30 year based on what the 10 returns......not much for 20 years of hold and hope.....
That how I see it...
Ciao
MS
2kt writes:
And if so, will Feds subsequently have to nationalize all other parties that would lose billions on such contracts and subsequently, all parties doing business with them?
That's it, I nominate the name for GD2: THE NATIONALIZATION, if Ireland or the Brits don't claim it first.
The biggest difference between the US credit crisis and the Swedish one in the early 90s is that the Swedish one was nearly only about commercial real estate. House prices did drop a fair bit, but this was collateral damage, not the root of the problems. The credit losses from individuals' mortgages were nothing compared to the losses from CRE mortgages (loans in Sweden are recourse so there was no jingle mail and things like that).
That also explains why home prices didn't drop much; there was no follow-through and not much of an overshoot.
When you understand that CRE was the problem in Sweden, comparing home price charts become quite meaningles.
Harvard Professor Harry Lewis Blown to Bits"
Almost everything we now do on a regular basis, from sending emails, taking photographs, writing text messages, calling on our cell phones, downloading music, typing on our computers, and using our credit and ATM cards, all of it generates information. And every single day the endless information generated by our ever-expanding digital footprints is recorded, tracked, searched through, sold, analyzed, and saved forever.
Harvard Prof. Harry Lewis “Blown to Bits” : Information Security Resources
Besides a transparent stress test, I really like Yves idea of selling out the good assets and deposits of failing banks into a new good entity, leaving the bad bank with its own bad assets. I think that would be the best repair for the economy, the global economy and the taxpayers. And it would make financial wizards think twice before tossing all caution to the winds again. How things wind down for the leftover bad banks is either a controlled bankruptcy or something I can't imagine yet.
LAS brilliant. Serious, why should we pay for their bad investments. No one is offering to pay for mine.
Too small for anyone to care if I fail.
The last two graphs show prices trending back toward the mean until the denominator of the dependent variable in this time series declines then all bets are off.
It is only a matter of time before the graphs practically stalls.